Quanta Services, Inc. (PWR) Q1 2012 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the Quanta Services First Quarter 2012 Earnings Call. [Operator Instructions] And as a reminder, this call is being recorded today, May 3, 2012. I would now like to turn the conference over to Kip Rupp, VP of Investor Relations. Please go ahead.

Great. Thank you, Craig, and welcome, everyone, to the Quanta Services conference call to review first quarter 2012 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 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, May 3, 2012, and therefore, you're advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call. This conference call will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or are beyond Quanta's control, and actual results may differ materially from those expected or implied as forward-looking statement. Management cautions that you should not place undue reliance on Quanta's forward-looking statements, and Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. For additional information concerning some of the risks, uncertainties and assumptions that could affect Quanta's forward-looking statements, please refer to the company's annual report on Form 10-K for the year ended December 31, 2011; 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. 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 the Quanta Services First Quarter 2012 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 first quarter financial results. Following James' comments, we will welcome your questions. Our first quarter results reflect continued solid execution by our operations and robust demand for our services. Our revenues in the first quarter grew 68% compared to the first quarter of 2011, and our GAAP diluted earnings per share of $0.22 represents a $63.3 million net income improvement over the same quarter last year. Both our 12 month and total backlog increased at the end of the first quarter compared to the end of the same quarter in 2011. 12-month backlog increased about 37% and total backlog increased almost 12% compared to the backlog at the end of the first quarter of 2011. Our first quarter results were driven by strong performance in our Electric Power segment, due to the number of electric transmission projects in construction and our ability to safely execute on these projects. Of note, our employed count at the end of this year's first quarter was about 19,000, up 35% compared to the first quarter of last year, and up 7% sequentially since the end of the fourth quarter of 2011. Turning to our Electric Power segment, revenues increased approximately 65% in this year's first quarter compared to the same period last year. 12-month backlog at the end of the first quarter for the Electric Power segment increased 45%, and total backlog for this segment increased 14% compared to the end of the 2011 first quarter. We are in the construction phase on 12 large electric transmission projects, and most are progressing as expected without significant delays. We continue to see significant opportunity for large electric transmission awards in 2012 and 2013, as utilities move forward with these projects to improve grid reliability and transport power from renewable sources to load centers. 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. We are currently in various stages of discussions on approximately $1 billion of large electric transmission projects that we expect will be awarded this year. As I mentioned on our fourth quarter earnings call, we expect the timing of large transmission awards to be lumpy going forward. Therefore, we recommend that investors focus on new award activity over the long term rather than on a quarterly basis. In addition to the large electric transmission project opportunities, the smaller transmission market remains active, and tight industry capacity has firmed up pricing for these smaller projects. We have also seen distribution spending increased thus far in 2012 when compared to 2011, but are cautious about our expectation for the remainder of the year given that the politics of an election year could impact utility spending patterns. We believe attractive opportunities for solar EPC projects could move forward in 2012 and 2013. During the first quarter, we were selected by GCL Solar Energy to provide comprehensive EPC services on 2 photovoltaic facilities totaling 70 megawatts. These projects are located near the city of Alpaugh in Tulare County, California. The projects are scheduled for completion by year end. And once completed, the combined facilities will be one of the largest photovoltaic tracking facilities in the world. We're also working on the 20-megawatt Atwell Island solar facility in Tulare County, California for Solar Project Solutions, a joint venture between Samsung Green Repower and Enco Utility Services. Both of the GCL and Atwell projects are in the early stages of construction and will move into more active state of construction in the second quarter of this year. We are seeing additional utility scale solar opportunities that could be awarded this year. Like large electric transmission projects, we expect the timing of solar EPC project awards to be uneven due to the regulatory environment, availability of project financing and other factors. Natural Gas and Pipeline revenues increased about 103% in the first quarter of 2012 compared to the same quarter last year. At the end of the first quarter of 2012, 12-month backlog and total backlog for our Natural Gas and Pipeline segment increased approximately -- about 29% and 12%, respectively, compared to the end of the first quarter of 2011. Demand for gathering system pipeline infrastructure within the shales is strong, and we remain encouraged by the opportunities we continue to see for our Natural Gas and Pipeline segment. Since our last earnings conference call, on February 22, Quanta has been awarded approximately $170 million of pipeline projects, for a total of approximately $370 million of pipeline project awards since the first of the year. The projects awarded thus far in 2012 consist of gathering system and pipeline construction projects that call for Quanta to construct new pipeline facilities and replace existing pipelines to facilitate the transportation of natural gas, natural gas liquids and oil to markets and processing facilities. These projects are for customers such as Anadarko Petroleum, Cayman Energy, EPE Energy , Enbridge Pipeline and Nicor Gas. Of our current 12-month backlog for pipeline projects, the majority is for pipeline gathering system infrastructure with the remainder for long-haul pipeline projects. It is worth noting that we have had no -- we had no pipeline gathering projects in hand or in backlog at this time last year. We are also encouraged by the level of long-haul pipeline opportunities on the horizon. In addition to the Keystone XL project, there are several large pipeline projects yet to be awarded that are targeted for construction later this year, in 2013 and in 2014, that will require a significant amount of pipeline construction industry capacity. Based on these long-haul pipeline opportunities, coupled with our expectations of a strong pipeline gathering system market in those years, we anticipate industry capacity could meaningfully tighten going forward. As a result of the strategic initiatives we have executed on over the past year and the positive demand side outlook for our pipeline construction services for the next several years, we believe our Natural Gas and Pipeline segment is better positioned today for profitable growth than it was at this time last year. Although we have incurred an operating loss in the first quarter for this segment, we do expect this segment to be profitable for the full year of 2012. Our Telecommunications segment continues to experience momentum. Revenues increased approximately 33% in this year's first quarter compared to the same period last year, and we expect to improve financial performance for this segment in 2012 versus 2011. Compared to the end of last year's first quarter, 12 month and total backlog for this segment increased almost 13% and about 2%, respectively. The increase in revenues, margins and backlog for this segment versus the first quarter of last year was driven by increases in the engineering and startup of broadband stimulus projects, fiber-to-the-cell site projects and wireless-related work. We anticipate that this segment's revenues will grow at double-digit rates with attractive margins throughout the year. In our Fiber Optic Licensing segment, revenues in the quarter increased approximately 3% compared to the first quarter of last year. 12 month and total backlog increased about 10% and nearly 4%, respectively, at the end of this year's first quarter as compared to the end of the first quarter of 2011. We experienced a pickup in sales activity last year and during the K-12's school district selling season earlier this year. We believe this activity will result in an increased revenue growth in the latter part of this year and into 2013. We continue to balance the build-out of our newer markets to increase network penetration, while investing in our more mature markets that generate higher margins and returns in the near term. This balanced approach has enabled us to enhance our networks to grow returns and revenues, while also maintaining relatively consistent and high margins. As a result of our strong first quarter results, the expectation of continued strength in our Electric Power segment, the improved opportunities and better visibility for our Natural Gas and Pipeline segment and our continued expectation for growth in our Telecom segment, we are increasing our 2012 full year outlook. We are increasing our revenue estimate by $400 million to $500 million and our diluted and adjusted diluted earnings per share estimates each by $0.10. James will provide additional detail about our outlook in his comments. Though we are excited about our opportunities for 2012, our outlook continues to take in account a challenging operating environment due to economic uncertainty, and in particular, a tough regulatory environment in a presidential election year. These factors are outside of our control, and they have impacted the timing of project awards and project starts in the past. In summary, total company backlog remains strong. Our Electric Power segment continues to perform well, and we see significant transmission opportunities for the next several years. We also believe our better positioning and indications of an improved operating environment for our Natural Gas and Pipeline segment should produce better results for this segment in 2012 versus 2011, with momentum building in 2013 and 2014. As a result, we believe all of our operating segments will experience an increase in revenues and margins in 2012. As a final note, in early April, we announced that James Haddox will assume the role of Executive Vice President of Quanta on May 17 of this year and that Derrick Jensen, Quanta's Senior Vice President of Finance and Administration and Chief Accounting Officer will assume the role of Chief Financial Officer on the same date. James will remain actively involved with Quanta in his role as Executive Vice President. Derrick has been with Quanta since its inception. I have worked with Derrick for nearly 14 years, and I'd like to thank James and congratulate Derrick, and I look forward to continuing to work with them both. With that, I would like to turn the call over to James.

Thanks, Jim, and good morning, everyone. Today, we announced revenues of $1.43 billion for the first quarter of 2011 compared to $849 million in the prior year's first quarter, reflecting growth of about 68% quarter-over-quarter. Net income attributable to common stock for the quarter was $45.7 million or $0.22 per diluted share, as compared to a net loss of $17.6 million or a loss of $0.08 per diluted share in the first quarter of last year. The growth in consolidated revenues in the first quarter of 2012 was driven by growth across all of Quanta's segments. Also contributing to our increased revenues in the first quarter of 2012 was the incremental contribution of approximately $50 million in revenues during the quarter from companies acquired since the first quarter of 2011. Our consolidated gross margin increased from 8.4% in 1Q '11 to 13.7% in 1Q '12. This increase was due to higher profit margins earned across all of our segments, with the majority of the increase being driven by improved performance on electric power transmission projects and reduced losses in the Natural Gas segment. Selling, general and administrative expenses of $107 million increased $15 million as compared to last year's first quarter. This increase is primarily attributable to $4.1 million in higher salary and benefit costs associated with increased levels of activity; approximately $3.7 million in additional administrative expenses associated with companies acquired since the first quarter of 2011; and $3.1 million in increased professional fees and technology development costs relating to starting activities that no longer qualify for capitalization. As a percentage of revenues, selling, general and administrative expenses decreased from 10.8% in the first quarter of 2011 to 7.5% in the first quarter of 2012, primarily due to the higher overall revenues as previously discussed. Our consolidated operating margin before amortization expense increased from a loss of 2.4% in 1Q '11 to a positive 6.2% in 1Q '12. To further discuss our segment results, the Electric Power segment's revenues were up about $367 million quarter-over-quarter or approximately 65%. Revenues were positively impacted by higher revenues from electric power transmission services resulting from an increase in the number and size of projects that are ongoing in 1Q '12 compared to 1Q '11. Also contributing to this increase was the incremental contribution of $40 million in revenue from acquired companies and $16 million in higher emergency restoration services, resulting primarily from winter storm work in the Northwest region of the United States. Additionally, as compared to last year's first quarter, when we had construction start delays on 3 major power transmission projects, this year's first quarter had no such delay. Operating margin in the Electric Power segment increased to 11.7% in the first quarter of 2012 compared to 5.2% in last year's first quarter, primarily due to higher overall revenues from services on higher-margin transmission projects, as well as increased higher-margin emergency restoration services. Additionally, these increased revenues contributed to this segment's improved ability to cover fixed and overhead costs. Natural Gas and Pipeline revenues increased quarter-over-quarter by 103% to $358.9 million in 1Q '12, primarily due to an increase in number and size of transmission pipeline projects. Additionally, we saw increases in revenues from natural gas distribution services due to an outsourced services agreement for gas distribution work, which we started in the second quarter of 2011, as well as increased spending by certain of our customers. Operating loss for the Natural Gas and Pipeline segment as a percentage of revenues decreased to negative 3.1% for 1Q '12 from a negative 20.9% for 1Q '11. This improvement was primarily due to the prior year being significantly impacted by productivity issues on certain gas transmission pipeline projects, which were hampered by unusual winter weather and complicated by restrictive governmental regulations. Significant rainfall adversely impacted the profitability of certain projects in the first quarter of 2012, although, to a lesser extent than we experienced in 1Q of '11. Revenues from our Telecommunications segment increased $26.6 million or 33% from $106 million in 1Q '12, 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 7.9% in 1Q '12 compared to a negative 4.6% in 1Q '11. This increase in margin is primarily due to the 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 $27.0 million for the first quarter of 2012, reflecting an increase of 3% over 1Q '11. Operating margin was 50% in 1Q '12 compared to operating margin of 45.8% in 1Q '11. When calculating margins by segment, we do not allocate certain selling, general and administrative expenses and amortization expense to our segments. Therefore, the previous discussion about operating margins by segment excludes the effect of such expenses. Corporate and unallocated costs increased $13.3 million in the first quarter of '12 as compared to 1Q of 2011, primarily due to $5.3 million in higher salary and incentive compensation costs associated with current levels of operating activity, and $3.1 million in higher amortization expense, as well as increased professional fees and technology development costs relating to certain activities that no longer qualify for capitalization. Adjusted diluted earnings per share, as calculated in today's press release, was $0.27 for the first quarter of 2012 compared to an adjusted diluted loss per share of $0.05 in 1Q '11. Cash flow used in operations was approximately $60 million. Capital expenditures were about $34 million, resulting in approximately $94 million in negative free cash flow for the quarter. The negative free cash flow during the first quarter of 2012 was primarily due to higher costs in excess of billing balances and certain ongoing electric and gas transmission projects at first quarter production that had now reached milestone billing points, as well as increased retainage balances associated with these ongoing projects. The higher production on certain transmission projects due to favorable weather resulted in increased revenue. However, some of the billing units associated with these projects are large, and the milestones for submission of these billings had not occurred as of the quarter end. Despite these increases, our days sales outstanding or DSOs were 79 days at March 31, 2012, versus 84 days at March 31, 2011, and 68 days at December 31, 2011. EBITA for the first quarter of 2012 was $84.7 million or 5.9% of revenues, compared to a negative $22 million or negative 2.6% of revenues for the first quarter of 2011. Adjusted EBITDA was $122.4 million or 8.6% of revenues for the first quarter of 2012, compared to $12 million or 1.4% of revenues for the first quarter of 2011. The calculation of EBITA and 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 March 31, 2012, we had about $182 million in letters of credit outstanding, primarily to secure our insurance program, and had no other borrowing. In addition, at the end of the quarter, we had approximately $177 million in cash. Considering our cash on hand and availability under our credit facility, we have nearly $695 million in total liquidity as of March 31. We closed 3 acquisitions during the first quarter for an aggregate purchase price of approximately $67 million, comprised of about $25 million in stock and $42 million in cash. Subsequent to the end of the first quarter, we closed an additional acquisition of a full-service electrical construction company in the Southeast U.S. for $38 million and finalized an additional $52 million equity investment in Howard Midstream Energy Partners. Howard Energy used the proceeds of our investment, together with capital contributed by other investors, to acquire additional pipeline assets in South Texas. Our equity investment in Howard is approximately $87 million after this transaction, representing about a 31% interest. Concerning our outlook for 2012, we expect revenues for the second quarter of 2012 to range between $1.4 billion and $1.5 billion, and diluted earnings per share to be $0.28 to $0.30 on a GAAP basis. This estimate compares to revenues of $1.01 billion and diluted earnings per share of $0.15 in GAAP EPS in 2Q '11. Our GAAP EPS forecast for 2Q '12 includes an estimate of $7 million for noncash compensation expenses and $10 million for amortization expenses. Excluding these expenses, our non-GAAP adjusted diluted earnings per share for the second quarter are expected to be $0.33 to $0.35, and compared to non-GAAP adjusted diluted earnings per share of $0.19 in 2Q '11. This non-GAAP measure is calculated on the same basis as the historical calculations of adjusted diluted earnings per share presented in the release. As a result of our strong financial performance in the first quarter of 2012, our increased backlog and our higher level of confidence in the expected results for our Natural Gas and Pipeline segment, we have increased our 2012 guidance. We currently expect revenues for the full year 2012 to range between $5.4 billion and $5.7 billion, and diluted earnings per share to be between $1 to $1.20 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 $26 million for noncash compensation expenses and $39 million of amortization expense. Excluding these expenses, our non-GAAP adjusted diluted earnings per share from 2012 -- for 2012 are expected to be $1.19 to $1.39. We are currently forecasting net income attributable to noncontrolling interest to be approximately $4 million in the second quarter of 2012 and $16.3 million for the year. For additional guidance, we're currently projecting our GAAP tax rate to be approximately 37% for 2012, and we expect our diluted share count to be about 212 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 of all of 2011 of $172 million. As Jim commented, we have 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. As you know, this will be my last quarterly conference call as the CFO of Quanta. Effective at our annual meeting on May 17, Derrick Jensen will become CFO of Quanta. Derrick and I have worked closely together since the inception of Quanta, and I'm confident that Derrick will do an excellent job as Quanta's CFO. As for me, I'm looking forward to serving as Quanta's EVP and assisting Quanta as needed through this transition. This concludes our formal presentation, and we'll now open the line for Q&A. Operator?

[Operator Instructions] And our first question does come from the line of Tahira Afzal with KeyBanc Capital Markets Inc.

James, we're going to miss you. So I look forward to hopefully seeing you at Quanta headquarters. My first question is really, obviously, if you look at the strong performance in the second quarter and how it's shaping up, a lot of your guidance being taken up seems to reflect that. As you look at the second half of this year, could you talk a bit about the drivers that are on the positive, and really a little more color on the risk you're assuming there?

Tahira, we probably, for the first time, we've taken a lot of uncommitted out of our forecast because we are in an election year. And so much of our backlog is large project work that's subject to starts and stops because of the owners' regulatory environment. And so we've taken a conservative approach, and we've got very high -- I think our pipeline business is pretty much what we forecasted is what we have in backlog for the year. Not much uncommitted if any at all. And on the electric side, we're really not taking into account any future awards to any greater extent. So we are being conservative because we have been through this before. In prior -- in the last year, we've had some stops in projects which we got on the wrong side of guidance. So we're just trying to be conservative, and we'll take it a quarter at a time.

That seems to make sense. And I guess my second question is, your commentary on the long-haul pipeline side, very encouraging and really the first blush, really, outside of Keystone that seems positive. Could you talk a bit about what you think is driving this, and what we should be looking out for to see these projects really move ahead?

Yes, I mean, I can talk in general. Again, it's difficult because of the customer environment and the pipeline segment for us to disclose too much information specifically about customers. But it's what we've been saying all along, it's the Canadian oil sands, pipeline infrastructure, bringing that product to refineries either into the U.S. or to shipping ports in Canada. And also, just the gathering system in long-haul pipeline infrastructure to bring shale products to refineries and to markets throughout the U.S. And that's been the consistent theme, and we're starting to see some traction in the industry. And I think that it's getting ready to break out, the industry in general. And we're going to have some very robust years ahead, and we'll benefit from that.

And our next question does come from the line of Will Gabrielski with Lazard Capital Markets.

Can you talk a little bit about beyond the reliability and congestion of renewables-driven transmission work? I've just been seeing a lot more talk about rebuilding of lines and enforcement of NERC regulations. How much is that impacting your business? And what does that look like going forward?

That's a very good question, Will. The small transmission market is really accelerating and that is being driven by NERC compliance. And I would say that we're probably seeing just as large of an increase in the smaller transmission market, which probably makes up for almost half of our overall transmission market, just giving you a general estimate. I see that part of the transmission business accelerating even more than my large transmission market, and it's being driven by the NERC compliance standards.

Is there any way -- or have you seen any numbers that can quantify maybe the number of miles that are out there that could possibly fall under some sort of NERC-driven rebuild cycle?

We're hearing around 10,000 miles right now. It's probably going to increase over time.

Okay. And then one last question, if you'll allow me. Can you just run through -- you said you have 12 big projects in construction now. As you look through the year, what the schedule looks like in terms of big jobs winding down and then maybe some jobs that you recently booked moving into construction?

Yes, I mean, I think in general, the way to look at it is you got Sunrise and Hydro One that are winding down here in the second quarter. And you got most of the CREZ that's winding up in the second quarter. That's the big, I guess, movement. The other projects are moving along in construction, and they have completion schedules anywhere from mid-2013 all the way out through 2016.

And our next question does come from the line of Scott Levine with JPMorgan. Rodney C. Clayton - JP Morgan Chase & Co, Research Division: It's Rodney Clayton here for Scott. And congrats, again, to Derrick and James on your responsibilities there. So first, I just want to focus a bit on the regulatory environment. It sounds like you didn't have many delays in Q1 and it feels like maybe your visibility into the timing on some of the transmission projects is improving. Should we interpret that to mean that the permitting environment is getting any less onerous or is it just that some of your newer projects have had the time to push through the regulatory bottleneck?

I think it's the latter. I think that the regulatory environment has been onerous for our customers, and that we've just had projects move through that bottleneck into construction. But we are -- we do still have some projects that are working in Forest Service lands and we're just being very conservative on forecasting those projects through the rest of the year. Rodney C. Clayton - JP Morgan Chase & Co, Research Division: And I appreciate your commentary around election year politics. I certainly understand that. Are you seeing any impact at this time from the election calendar? Or is it just -- or that's just something that you're cognizant of that, that could occur later on?

We're cognizant of it, that it could occur later on. We haven't seen anything to date, but we expect the unexpected today versus the -- in the past. Rodney C. Clayton - JP Morgan Chase & Co, Research Division: Okay, got it. And then finally, looking at your pipeline business, obviously, revenue very strong in the quarter. And I understand that it's going to be profitable on a full year basis. Can you just remind us, what kind of turns that -- pushes that in the profitability? Is it just the higher activity levels that you're expecting later on in the year, absorbing your fixed costs? Or is there -- or is there some of the catalysts there?

No, I think it's just moving out of the first quarter that had some bad weather -- or challenging weather. It's just better weather. And second and third quarter is when you really move into full execution and get your better weather, to will drive a profitable business, which in turn will give us, we think, a marginally profitable business for the full year of '12. So we're looking forward to the second quarter and beyond in that segment.

And our next question does come from the line of Jamie Cook with Credit Suisse.

This is Andrew Buscaglia on behalf of Jamie Cook. So I got a quick question on -- just looking at, sort of looking at your strength in Q1, which is usually a seasonally weaker quarter. I know you mentioned that you had some revenues from acquisitions and some better weather. Was there anything else there that surprised you that -- I mean, I think you surprised us here a little bit, with such a strong top line and the margins were pretty good. So is there anything else that you're seeing in what is usually sort of a seasonally weaker time frame?

No, Andrew, I think it was really -- we just had so much transmission work going on. And the winter weather was very mild throughout the country, and we got better production and that translated into better margins. I think if there was anything added to that, is we were doing more work in the small transmission market than we expected because of NERC compliance.

Okay, yes. So, yes, it looks like some of the weather helped. Do you think that might have pulled anything? I know looking at your guidance, it looks like the back half implies sort of like a $0.60 between Q3 and Q4. Is that just you being conservative or is there just -- is there -- is some of that demand -- or some of that -- from the strength in Q1, just kind of pulled ahead from the remaining 3 quarters?

Again, I think -- well, we're being conservative in the second half of the year because it is an election year. So if you model the second half of the year, the fourth quarter's probably going to be light because we don't have a lot of uncommitted in there. So that's -- it is a conservative second half of the year, and we'll take it a quarter at a time.

And our next question does come from the line of Alex Rygiel with FBR. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: But a couple of quick questions. First on the pipeline business. What's your geographic mix these days, given that it's changed a little bit over the last 12 months?

We've primarily been in the Marcellus and we had a transmission job in the -- a long-haul pipeline job in Texas in the first quarter. That's completed. But we're primarily in the Marcellus and Eagle Ford and Bakken. That's where we're positioned to take advantage of these liquid-rich plays. Of course, our long-haul pipeline, we work throughout the country, wherever there's an opportunity. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: And could you run through your view on pricing by end market?

By end market, you mean by segment or just in the pipeline business? Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: You can go by segment in all your businesses.

I mean, pricing across the board is, I guess I can just say in general, is strengthening because the capacity in all of our segments is tightening up. You can look at any of the businesses, whether it's electric distribution, the small transmission market, the large electric transmission market, even the pipeline business is beginning to firm up. Telecom has been very active. That market's firmed up. So that should all translate into better margins this year compared to last on a consolidated basis. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: And one last question. Given sort of some of the transition in transmission projects in 2Q, should we expect margins in Electric Power to be a little bit better or a little bit softer than 1Q?

I think, margins should continue to be strong. It's going to be driven by Electric Power segment, which should perform on the upper end of the 9% to 12% operating income. We can't really take any one quarter. The second quarter -- the first quarter, obviously, was strong because we had good weather. It almost felt like a second or third quarter because of the mild weather. So I think I'd just rather leave it at that. You can't really show any patterns, margins should -- throughout the year, margins just should be strong. They should be in the upward, in the 9% to 12%, maybe even better than that for the year.

And our next question comes from the line of Jeff Beach with Stifel, Nicolaus. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: You had quantified the bidding opportunities in your Electric Power division, can you quantify opportunities, talk about how active the bidding or discussions are in the other 2 major divisions, gas and gas pipeline -- or Gas and Pipeline and Telecom?

Yes, on the pipeline side, Jeff, it's very active. It's a little bit different dynamic because last year, we were looking at $1.8 billion worth of activity that was going to be awarded and constructed during that calendar year. Obviously, that didn't play out. Now we're looking at probably a much higher number than that, but over 2- to 3-year construction period. So I think, a lot of that will firm up between now and the end of the year. So it's a very robust environment on the pipeline side. I would say it's definitely more robust than it was last year at this time. Telecom, obviously, we're in the height of the construction cycle for stimulus. We're still getting awards. We're seeing some MSA agreements come into play on the Telecom side as well. I think we had much as $30 million of MSA awards on the Telecom side in the first quarter. And we think that trend will continue. So it's still a very strong environment. Distribution, again, that market's growing. It's just all around, all of our segments have momentum. And price is tightening up, and the environment looks good in 2012 and into '13 and '14. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: And specifically with Telecom, you've got a nice backlog. Is there enough opportunity to maintain or possibly even grow that backlog through the year?

Yes, I mean, one thing, that's the wild card -- and we don’t think it's going to be a big issue because stimulus construction should wind down in the middle of '13. But many of the customers that benefited from stimulus will continue with their capital programs to expand the networks and then the wireless business should continue to accelerate, specifically, back-haul fiber construction. So we think that we may not have as strong a growth in Telecom in '14 over '13, as we do in our other segments, but it should still be a very strong environment.

And our next question does come from the line of Zach Larkin with Stephens Inc.

First question I had, Jim, I wanted to go back to your comments on the winding down of the Sunrise and Hydro One and then the increase on CREZ. As you're looking at those, knowing that both Sunrise and Hydro were done on a more compressed time schedule, do you think that the increase on the CREZ projects is going to be enough to offset them as we move kind of 2Q into 3Q? Or should we expect maybe a little bit of softening just on the overall level given those dynamics?

Now remember, CREZ is compressed, too. I mean that schedule -- many of those customers compress their schedules from 12 to 18 months. Less time to build those lines. The completion dates still must be by the middle of '13. So you're not going to see any softening in transmission in the second quarter.

Okay. And in second to third, same, same kind of dynamic there?

Yes.

Okay. And as you're looking at the renewables opportunities, are you seeing any differences or changes in the tides and/or scope of EPC projects that you're doing in that space?

No, it's pretty consistent with what we've done on the prior years. I will add that these opportunities that we're capitalizing on do take advantage of the 1603 tax grants. So beyond '13 and '14 -- or excuse me, beyond '12 and '13, we'll just have to see whether renewable market goes. But it looks like a very robust market for the next 1.5 years for us.

And our next question does come from the line of Adam Thalhimer with BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Jeff kind of just asked my question, but maybe I'll ask it again and you can expand it -- expand on it. But the Telecom backlog, total backlog up only 2% year-over-year. I just want to make sure that they didn't really portend any real weakening there, maybe it's just a lumpy issue.

Yes, you've got to remember that a lot of this stimulus work was awarded to us, and there were delays in the construction due to the permitting -- environmental permitting that was necessary. So we're burning off a lot of that construction -- that backlog in an accelerated manner because that was a bottleneck as well. So I think any backlog increase in that segment, with the amount of construction activity going on, is a positive. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then I did want to ask about, you made a comment about your electric utility customers, there -- are they feeling a little bit pressure? Maybe they cut back on distribution spending a little bit here as we move through 2012. What -- is that an issue of, with natural gas prices being down, is that squeezing their profitability a little bit? Why the weakness there from electric utility customers?

No, I mean, distribution was up in '11 over '10, and we've seen it up so far in the first quarter. And we still see momentum in distribution spending. We're just being cautious about being in an election year because when we had the midterm elections is when we saw distribution cuts the last time, politics played a role in the, I guess, in capital programs being cut back on distribution. So we're just anticipating that, that type of phenomenon could happen again. We haven't seen anything that indicates that. But our forecast is leaning towards being conservative in case that does come into play. Adam R. Thalhimer - BB&T Capital Markets, Research Division: And when you talk to those electric utility customers, they're not telling you they're concerned, you're just being cautious just based on your experience.

Being cautious, I mean, right now, the distribution -- the customer budgets are being released in the first quarter for distribution spending. So it's more an unknown right now to us. But we don't expect distribution. We haven't heard anything from our customers that they're cutting back. It's just a cautious approach.

And our next question does come from the line of Ahmar Zaman with Piper Jaffray.

A couple of questions. First one, so in your electric and pipeline business, a strong quarter. How should we think about the linearity in this business through the year, as we go through the year here? And what are some of the drivers of that linearity?

When you talk about linearity, are you talking about the seasonality of the business or our growth year-over-year?

Just the year -- as we go -- as we look at the full year, with a very strong quarter in the first quarter, as we go through Q2, Q3 and the second half of the year, do you expect any slowdown or continuous sequential growth? How should we think about that?

No, you should see a double-digit revenue growth in each of our segments and improving margins for the year, year-over-year. And a lot of that is being driven by increased activity in the U.S. and Canada. And Canada is going to be a very active market this year.

Okay, great. And so we should just assume that growth -- that strong double-digit growth year-over-year just linearly throughout the year?

That's correct.

Second question's on smart grid. We've heard there's some slowdown on the smart grid sector especially around AMI. What are you seeing in some of your engagements in the smart grid side?

We've got smart grid insulation contracts throughout the country and related smart grid apparatus like a wireless infrastructure and switchgear installations, and we haven't seen any slowdown in our smart grid business. Of course, incrementally, that's a very small part of our overall revenues. That's probably less than $100 million of what we do today. But we haven't seen any slowdown in that business.

Great. And then just -- I think, somebody already asked this question on your renewables side. Specifically on solar, you mentioned the 2 projects you won with GCL. What are you seeing in terms of overall solar growth in the U.S. year-over-year? Do you have any projections for the amount of megawatts this year that you're expecting for the U.S. market?

I think it was a 2-gig market last year. I think that number should be fairly consistent this year. But you got to be careful because a lot of that is distributive solar, and utility scale solar is kind of mixed in. But I think the utility scale programs that we're seeing is a very robust environment at least for the next 2 years, compared to what we've seen over the last 2 or 3 years.

And our next question does come from the line of Joe Ritchie with Goldman Sachs.

I guess my first question is really on your gas margins. Jim, if I heard you correctly, it's seems like you will get the profitability this year. Perhaps you can tell us a little bit about the timing. Do you expect the timing to be in 2Q? And then more specifically, as we kind of move out into 2013, do you think we can get back to a normalized margin range there for that business, just based on the visibility that you have today?

Yes. We expect to be profitable in 2Q. We have forecasted this to be marginally profitable for the year. I think that's being conservative, because we've only forecasted the backlog we have in hand. But certainly we expect execution and hopefully more awards. And we should be better than hopefully marginally breakeven or marginally profitable. We certainly think that in '13 and '14, we should return to normal margin patterns that we have seen in years prior to 2011.

Okay, that's helpful. And maybe a follow-on to that is, at your Investor Day, you guys listed a few sample pipeline projects that you expected to start construction in 2012, 2013. Perhaps maybe you can provide an update on whether any of those projects have been awarded yet or whether you're still expecting those projects to move forward as planned?

None of those have been awarded to -- I know there's been some Texas projects awarded. But for the most part, that list, most of those haven't been awarded. They're all still in play. And they should move into construction in '12 -- excuse me, '13 and '14. Most of those projects will move into construction in '13 and '14.

And our next question does come from the line of William Bremer with Maxim Group.

James, wish you well. Derrick, congratulations. Many of my questions have been answered. I want to go into pipeline in terms of integrity and inspection. Can you give us an idea of how that has been progressing throughout this first quarter?

It's been progressing very well. It's a very small percentage of our overall pipeline segment, revenues today. But it probably has the opportunity to grow faster than any other part of our business. And we actually bought a pigging company in the first quarter to help -- allow us to provide full service -- integrity services to our customers. And we're excited about that business. And we think that over the next several years, for years to come, that business should grow significantly.

And our next question does come from the line of Justin Hauke with Robert W. Baird. Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division: I hate to pick on the pipeline business, still. But I do have a couple of questions. I guess it's just confusing to me because the revenue was so strong, I mean, it doubled last year. And when I looked at what the margins were in that business in 2010, when your revenue was about half of what you did this quarter, you weren't posting losses. So I guess maybe the way to ask it is, the shale work that you're doing versus the long-haul work, can you break out kind of what the profitability was in your shale work specifically?

Yes, I mean it's pretty consistent, Justin, with the shale and the pipeline work. I mean, we -- a couple of data points for you. I mean, we did have a very good revenue quarter. And we typically see that type of revenue in the second and third quarter, we had it in the first. And we did have the mild weather in the winter due to the fact just because we did have more rain and snow and frozen ground to work in and that the muddy conditions certainly hurt our production. And I hate talking about the weather. All I can tell you is you're going to see improved performance in the second and third quarter and for the full year. And we had a challenge in the first quarter but we -- I think we've talked about being breakeven in the pipeline segment. We did have a slight loss because of some of the weather challenges that we faced, primarily in the Marcellus. Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division: To be clear then, I guess it's not an asset utilization issue here, where you're not generating enough revenue to cover it. It was more specific to the quarter because of weather-related issues.

That's correct. That's correct. We're fairly -- we're pretty well utilized right now. So we feel pretty good about our position going into the second quarter. Justin P. Hauke - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then my second question. A little more high level, but one of the things we're starting to hear more about is FERC pushing back on the allowed ROEs of some of these larger transmission projects. And I guess, just to the extent you can comment on kind of what you're seeing on that front, and if that's having any impact on kind of the decision calculus of the utilities?

We're not really seeing that. But if that was the case, you still have the reliability issues that need to be addressed. And even if they ratchet back the ROEs, it's still going to be the higher -- the best investment for our utility customers. It will still be the highest rate of return for them, would be in transmission. So we're not concerned about that. But we haven't really seen or heard any of our customers talk about reduced ROEs affecting any of the capital programs going forward.

And our next question does come from the line of Craig Irwin with Wedbush Securities.

Most of my questions have been asked, but I was hoping that you might be able to comment a little bit about the Electric Power segment, and maybe the difference in profitability that you're seeing between your larger projects and some of your smaller projects in the typical O&M type work you do for your customers. And whether or not you expect that, that spread will narrow over the course of the next several quarters.

Well, usually in the past, in the slower, smaller transmission market, we saw probably 400 to 500 basis points gap in margins. But now, I think it's pretty much neutral. You might have a little bit of a gap, but it's nothing very wide. And then I would say that there are almost maybe 100 basis points difference with that on the smaller transmission jobs. I'm not saying there aren't some select jobs that might have 200, 300 basis points difference. But overall, with the small transmission market, pricing has improved significantly because of the tightened capacity in the industry.

Great. And previously, in your prepared comments, you mentioned $1 billion in large transmission projects that you're actively pursuing, that you think have a good probability of being awarded. Can you clarify if you've already been shortlisted for those projects or those are high probability projects for Quanta to be awarded? Or is this something where we should maybe allocate your more normal sort of win rate on large projects to scope out the potential future awards for Quanta right there?

There's a good portion of those that there's a significant -- a high probability that we'll be awarded. There's similar others that we're in the final running, there's probably just 2 contractors being evaluated.

Okay. I'm sorry, just to clarify, should we look at that year receiving your typical share of the large projects on that $1 billion, or should your share of that $1 billion and potential work be substantially higher than your more recent win rate?

It will be higher than our more recent win rate.

And our next question does come from the line of Dan Mannes with Avondale.

Congrats to both Derrick and James. I'm going to pile on, on the pipeline segment. You had a couple of questions in this arc, and I guess I want to follow-through on it. When you contrast the bidding environment this year to last year, you noted there's a significantly larger amount. Can you talk about the pace of words, have you seen more coming through than you did last year? Or is it sort of the same scenario where nothing -- very little work is actually being awarded?

We're seeing a lot of gathering system work being awarded and there's significantly more discussions and activity around the long-haul pipeline that will be constructed toward the end of this year and into '13 and '14 than what we've seen in a long time.

Okay. And then the follow-up on that, and I think you might have mentioned some of the regions. We've seen a couple of contracts get awarded down in Texas to union contractors like Price Gregory. Is that indicative of maybe a better and maybe less aggressive pricing -- a more attractive pricing environment for contractors? Or are those sort of one-offs that we should not pay attention to?

No, I think it's the former. I think it's the tightening capacity in the industry and pricing is firming up.

I thought also. We've had a couple of questions -- this is James. We've had a couple of questions about the seasonality or linearity in our forecast. And I thought I'd clarify that. We -- by our expansion of our services into Canada, although it's somewhat counterintuitive, I think this year, that's going to flatten some of the typical seasonality that you've seen in our business because the weather in Canada was normal this year, so it froze when it was supposed to, unlike last year, and created the ability for us to work in tundra and in environments that you have to work in, in frozen conditions. So we are now working in Canada and seasons -- in the season that's typically a slow season if we're just in the U.S. So I think you're going to see in our forecast, when you guys start to try to do your quarterly models, you're going to see, we have a flattening of the differentials between, say, the first quarter and second quarter and third quarter because of that effect. We did have some weather effect on the pipeline division because of rain on a couple of jobs that we had in the first quarter. So you can see that in the margins. And then, the fourth quarter, when you start to model it out based on our guidance, the fourth quarter is probably going to be somewhat lower than you're accustomed to, related to the other quarters, but that's because of the fact that it's an election year and the weather is unpredictable when you get into the fourth quarter. If it doesn't freeze in Canada when we think it's going to, or if we have adverse weather in the fourth quarter in the U.S. that affects our productivity, the fourth quarter could be lower than you expect it to be. So that's why some of you seem to be or may be having problems with modeling the quarters compared to our typical seasonality. I just thought I would try to clarify that for you guys. Do we have any other caller?

And we do have one final question, it does come from the line of Will Gabrielski with Lazard Capital Markets.

I'm just wondering if you guys could talk maybe about your balance sheet and then capital allocation from here and any plans to maybe do some more repurchases?

At the present time, we don't have any approvals from our board to do any repurchases. Right now, as you can see from our balance sheet, between the end of the year and the end of the first quarter and continuing on into the second quarter, we're using our capital exactly like we've been saying we would use it, which is to help support working capital requirements of all of the large projects and increases in backlog that we see. So that's coming to fruition as we've been saying for the last couple of years. We're also using it for capital expenditures. We are seeing the normal amount of acquisition activity that we've seen in the past. As we said, we completed one since the end of the second quarter. And then as we get through the year and see how our cash flow looks and the need for capital on all the items I just mentioned, then we'll start looking at other uses of capital, such as share repurchases and down the list, a dividend possibly. But at this point in time, there's no plan for share repurchase or dividend on our agenda.

All right. You just had a lot of pressure on the board to pay a dividend on your way out, I guess?

I didn't think I did. That was a mistake if I did that.

And at this time, I would like to turn the call back over to management for any closing comments.

Well, I'd like to thank you all for participating on our first quarter 2012 conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you. This concludes our call.

Thank you. Ladies and gentlemen, that will conclude the conference for today, and we do thank you for your participation. You may now disconnect your lines at this time.