Kip A. Rupp - Founder and Managing Partner James F. O'Neil - Chief Executive Officer, President and Director Derrick A. Jensen - Chief Accounting Officer and Senior Vice President of Finance & Administration

Alexander J. Rygiel - FBR Capital Markets & Co., Research Division Daniel J. Mannes - Avondale Partners, LLC, Research Division Jamie L. Cook - Crédit Suisse AG, Research Division Will Gabrielski - Lazard Capital Markets LLC, Research Division Saagar Parikh - KeyBanc Capital Markets Inc., Research Division Zach Larkin - Stephens Inc., Research Division Scott J. Levine - JP Morgan Chase & Co, Research Division Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division Shawn E. Lockman - Piper Jaffray Companies, Research Division William D. Bremer - Maxim Group LLC, Research Division Craig E. Irwin - Wedbush Securities Inc., Research Division Adam R. Thalhimer - BB&T Capital Markets, Research Division Joseph Ritchie - Goldman Sachs Group Inc., Research Division

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Quanta Services Second Quarter 2012 Earnings Conference Call. [Operator Instructions] Following the presentation, the conference will be opened for question. [Operator Instructions] This conference is being recorded today, August 2, 2012. I would now like to turn the conference over to Kip Rupp, VP of Investor Relations. Please go ahead, sir.

Great. Thank you, Arianne, and welcome, everyone, to the Quanta Services conference call to review second 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 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 the information reported on this call speaks only as of today, August 2, 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 statements. 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 Quanta Services Second Quarter 2012 Earnings Conference Call. I will start the call with an operational overview before turning it over to Derrick Jensen, Quanta's Chief Financial Officer, who will provide a detailed review of our second quarter financial results. Following Derrick's comments, we will welcome your questions. Our second quarter results demonstrate continued solid execution by our operations and reflects strong demand for our services. Our revenues in the second quarter grew 50% compared to the second quarter of 2011, and revenues for the first 6 months of this year have increased 58% compared to the same period last year. Our GAAP diluted earnings per share of $0.31 in the second quarter increased 107% compared to the second quarter of last year. Our second quarter results were driven by strong performance in our electric power segment due to the significant volume of electric transmission projects underway and our ability to safely execute on those projects. Quarter over quarter and sequentially, improved performance from our natural gas and pipeline segment also contributed to the strong results. Our employee count at the end of this year's second quarter was approximately 19,300, up 30% compared to the second quarter of last year and up 10% since the end of 2011. Our electric power segment revenues increased approximately 52% in this year's second quarter compared to the same period last year. At the end of the second quarter, 12-month backlog for the electric power segment increased 27.4%, and total backlog for this segment increased 4.1% compared to the second quarter of 2011. In the second quarter, Quanta completed the installation of San Diego Gas & Electric Sunrise Powerlink transmission line, which was energized on June 17. This was an extremely challenging project due to the…

Thanks, Jim, and thanks, James. Good morning, everyone. Today, we announced revenues of $1.52 billion for the second quarter of 2012 compared to $1.01 billion in the prior year's second quarter, reflecting growth of about 50% quarter-over-quarter. Net income attributable to common stock for the quarter was $65.5 million or $0.31 per diluted share, as compared to net income of $31.8 million or $0.15 per diluted share in the second quarter of last year. The growth in consolidated revenues in the second quarter of 2012 was driven by growth across all of Quanta's segments. Second quarter 2012 revenues were also favorably impacted by the incremental contribution of approximately $58 million in revenues from companies acquired since the second quarter of 2011. Our consolidated gross margin increased to 15.5% in the second quarter of 2012 from 15.2% in 2Q '11. This increase was due to strong performance in each of our segments, as well as the impact of higher revenues, which improved our ability to cover fixed costs. Selling, general and administrative expenses were $115 million, reflecting an increase of $25 million as compared to last year's second quarter. This increase is primarily attributable to $14.5 million in higher salary and incentive compensation costs associated with increased levels of activity and profitability, approximately $5.7 million in additional administrative expenses associated with companies acquired since the second quarter of 2011, and $5.2 million in increased professional fees associated with ongoing legal matters. As a percentage of revenues, selling, general and administrative expenses decreased from 8.9% in the second quarter of 2011 to 7.6% in the second quarter of 2012, primarily due to the higher overall revenues as previously discussed. Our consolidated operating margin before amortization expense increased from 6.3% in 2Q '11 to 8.0% in 2Q '12. Amortization of intangible assets increased…

[Operator Instructions] And our first question comes from the line of Alex Rygiel with FBR Capital Markets. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: A couple of questions, first, Jim, you finished 2 big transmission projects. You started 3 big transmission projects. How should we think about the positives or negatives that came through your P&L because of all that activity? Was it a net positive? Was it a net negative because of the transition of the 2 and the 3?

I think it's neutral, Alex. I mean, we have [indiscernible] costs that typically go into our POC accounting. So I mean, if it is a little bit negative, it would be immaterial. So it's neutral. I mean, I think the important thing is that we continue to have momentum and we're able to fill any burn with backlog in large transmission projects going forward. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: As I look at your book-to-bill and your new awards, I focus a lot more attention on 12-month backlog. And the new awards in your 12-month backlog, I think, was the third highest in history, which is an amazing number here. Do you continue to believe that new awards can remain at a very high level like they are right now for the foreseeable future?

Yes, I mean one thing you guys don't see are projects below $100 million, and a lot of our smaller projects continue to accelerate. I'd say our small transmission market is growing faster than the big projects. And that's our everyday work, distributions growing. Every aspect of our business has growth in it today. The big projects, we had a light quarter on awards, but that -- I expect in the third quarter, we're going to see more activity there. So I feel very confident that the backlog will be strong as we go into '13. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: And it sounds like storm activity in the second quarter was maybe even somewhat of a negative. Do you expect that to kind of reverse and be a little bit more of a positive in the third quarter?

It will be. We only have $13 million in storm revenue in the second quarter. And the storm work that we started on here in the third quarter was significantly more than $13 million that began in the first week of July. So I can tell you with confidence that storm revenues in the third quarter will be higher than in the second.

And our next question comes from the line of Dan Mannes with Avondale Partners.

Talking real quick about your guidance. It's a really nice increase on the -- for the year and really not because of the quarter. I mean, it seems like a pretty significant move up. Can you talk a little bit about what increases your confidence or what changes your view for the balance of the year given what you've experienced, I guess, over the last quarter?

Dan, it's really just better visibility. I mean, we're in an election year, we didn't -- we did hedge a little bit on timing on some of these project starts. But we're getting better visibility that these projects will start on time. And it's really just visibility between what we see today versus what we saw back in May.

Is there any impact from the tightness, i.e. the margins in your backlog? Have they been improving relative to where they were 3, 6, 9 months ago? Or is that not as much of an indicator?

Margins and backlog are strong or stronger than what we're experiencing today.

And our next question comes from the line of Jamie Cook with Credit Suisse. Jamie L. Cook - Crédit Suisse AG, Research Division: So I guess, can you just talk about your confidence level on the gas side with the margins that you put up with -- the worst is behind us, and how you see margins trending in the back half of the year, specifically, and what you think the implications could be for 2013? With and without big gas -- with regards to 2013, how we think about things if big gas or if it doesn't pick up, I guess.

Well, the good thing, under Duke's leadership and trying to shift resources into these gathering fields, which we moved into that initiative about a year ago, now we're well established in these liquid-rich fields. That works almost like an MSA work. It's recurring revenues, and it is profitable. And the second quarter's a good example that we don't have to have any big pipework to gain profitability in that segment. So we expect that work to continue, that shale-gathering work. There will be some seasonality due to weather in the fourth and first quarter, but it should be more predictable going forward. Any big pipework would be incremental to that. Because those are lump-sum type projects, the margins on large pipe are 400 to 500 basis points higher than what we experience in the shale-gathering work on an average basis. So we're very excited about where we're going with the segment. Everything that we expected and communicated to you guys is playing out as expected. And we do expect to be profitable for the year in that segment. And I look forward to good things next year.

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

Two questions, one on electric. We have heard from a few different power generating companies that the EPA rules are starting to -- around emissions, are starting to drive some incremental transmission spending and you touched on that. I'm wondering if you could give a little more detail of whether or not you're doing that work now and what the visibility is like there. And then I'll have a follow-up.

Not a whole lot right now, Will. We think that'll play out over the next -- probably be more significant 2, 3 years from now, even into 2020. I mean, it's a longer play for us. I mean, the main thing is that the rule will drive coal switching to gas primarily. And while those rebuilds are occurring, whether it's a rebuild or a new gas plant that's being built, transmission will either be upgraded or will be built new and -- but we think that will play out over a longer period of time. But certainly, it will be incremental to our business.

Okay. And then on the natural gas pipeline side, I guess you're getting your hands dirty in some of the different basins that are out there now and expanding beyond the Marcellus. I'm wondering what the competitive environment looks like, union versus nonunion, and what type of progress you're making in the different fields.

We're seeing capacity just tighten overall in that market, both union and nonunion labor. And it is presenting opportunities for us to get the pricing that we aspire to have in that business even in nonunion markets. So I did make comments in my script that capacity is tightening and we do see that continuing in the shale fields today. And we expect that will continue. And once big pipe construction moves forward in a meaningful way, we think we're going to be really tight. The industry is going to be really tight in capacity. So the momentum that we're seeing and -- our expectations are very positive for that segment.

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

This is Saagar on for Tahira. My first question relates again to the pipeline business, and I know that you've touched on a little bit of this. But the second quarter pipeline profitability was -- is it really a reflection of what the base pipeline margins on a clean level should be going forward? And along with that, how many of your spreads were utilized in the second quarter because as we saw, overall pipeline revenue was down sequentially?

Yes, I think we did have some weather impact in the second quarter. So I think margins should be just -- should be a little bit better than what we experienced on a go-forward basis provided we have good weather. We should be closer to the mid to upper mid single digit operating income with just shale-gathering work. And I think we did 4.5% for the segment. Other than that, I think, going forward, if we get big pipework in the mix, we should be up in the 9% to 12% range. And I'm sorry, I didn't catch the second part of the question.

Oh, I just -- how many of your spreads were utilized in the second quarter because as I saw, the overall pipeline revenue was down sequentially?

We look at spreads in 2 ways. One is equipment, and one is people. And I would say that from a personnel standpoint, we're fairly utilized in the shale-gathering work right now and in Canada. As far as spreads are concerned, we do have some underutilization on some of our specialized equipment for big pipe. But other than that, our equipment is being utilized fairly well on the equipment that can be used in both big pipe and in shale-gathering work. So I would say overall, our utilization is pretty high right now.

And our next question comes from the line of Zach Larkin with Stephens.

First question, Jim, I wondered if you could talk a little bit more about the small transmission work, the positive indications there. And I wondered if there's any kind of a geographic impact where you're seeing the most strength in the small transmission markets. Or is it something that's pretty broad-based across the country?

It's broad-based across the country right now. I mean, it's NERC compliance standards that all of our customers have to meet. And those went into effect late last year, and we're starting to see momentum there. So we expect that will continue -- it's a multiyear trend. And it's a significant amount of work that needs to be done. So it's -- the day-to-day work, the $5 million, $10 million, $20 million, $30 million projects, but there are some specific requirements that NERC has put out that our customers need to meet, and that's driving a lot of our construction activity today.

Great, thanks. And then Derrick, I wondered if you could give a little bit more color on the legal expense. Is that something that you expect to kind of continue through the end of the year? Or do you have any sense on when those expenses might curtail?

I think we'll have some form of expense through probably the rest of this year.

And our next question comes from the line of Scott Levine with JPMorgan. Scott J. Levine - JP Morgan Chase & Co, Research Division: So I was hoping you might be able to provide a little bit more color on priorities for cash for deployment. I know you made some discussion about investing in individual projects on a select basis, maybe any thoughts there, as well as your current M&A outlook and appetite for acquisitions either in the U.S. or overseas.

Sure. I'd say that it remains somewhat constant. And as you saw from the second quarter, I mean, our first demand is working capital to support our projects. And as we talked about, we have capital expenditure needs for this year. We are optimistic still on the acquisition and investment side. I mean, we've talked about some smaller investments that are out there. And at the same time, from an acquisition standpoint, I'd say that we closed 10 acquisitions in the last 12 months. And I believe we'll continue to see that -- a similar type of opportunistic activity over the next 12 months. Scott J. Levine - JP Morgan Chase & Co, Research Division: Got it. And Jim, I'm not sure if I caught this as well in your prepared comments. Is there any update regarding your thoughts on the renewables business for this year, in particular the solar side?

Renewables will be strong this year, particularly solar, as we take advantage of -- our customers take advantage of the 1603 tax grant that expired at the end of last year. So we do have significant activity. We will experience strong double-digit growth in solar this year and renewables overall. And I expect that, that trend will last into '13. Beyond that, I think a lot of it has to do with what state RPS does because federal subsidies are expiring, but for the foreseeable future, it's going to be a very active business for us.

And our next question comes from the line of Jeff Beach with Stifel, Nicolaus. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: A couple of questions. One, the electric margin in this quarter at 11% on record revenues, below the margins of the last 3 quarters at least, and you had a couple of major project close-outs, can you describe why the margin is lower this quarter than the past 2 or 3?

Yes, this is Derrick. The primary reason is actually the amount of storm work. I mean, when you look at the amount of the storm work we had in the fourth quarter of last year and the second quarter of last year, as well as even the first quarter of this year, we had substantially higher revenues from storm and yet, in all of those periods. And those things come in at higher margin. This quarter, we only had $13 million of storm work that compares to numbers of -- in the neighborhood of like $50 million from the previous period. So that's a pretty big driver. And then kind of sequentially, I mean, from the first quarter to second quarter, we had great weather in the first quarter, allowing us to have substantially higher productivity. That contributed to both revenues and reduced costs in the first quarter that when we come to the second quarter, those weren't quite the same. Relative to close-outs, there wasn't anything unusual in the second quarter relative to any close-out jobs. So there wasn't anything negatively impacted in the quarter. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: And as the follow-up, can you tell us what the growth rate was in your electric distribution revenues this quarter year-over-year?

Yes, I mean, I think last year, we said we had about 10%. And again, we don't measure this segment. There is some gray line between small transmission and large distribution. But it's not a bright line. But I would say that we're experiencing close to 15% to 20% growth in distribution year-to-date, compared to 10% year-over-year last year over the prior year. So distribution does continue to accelerate, and we're real pleased about that. Jeffrey L. Beach - Stifel, Nicolaus & Co., Inc., Research Division: Does any of that have to do with the extreme hot weather?

It has to do with extreme hot weather, NERC reliability standards, pent-up demand because distribution has been at very low levels. Distribution mainly has been at low levels since '08, and it's really catch-up. So it's also housing. Housing reports over the last quarter have started to turn, and we do have some new housing starts. So it's a combination of different things, Jeff.

Our next question comes from the line of Andrew Wittmann with Robert W. Baird. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: I was just wondering a little bit about the guidance. And Jim, you kind of mentioned some better visibility is giving you the confidence to raise the guidance. Is there any change in your overall approach, where you try to be real conservative and really put in there what you know you have? Or has the execution success here over the first 2 quarters of the year maybe encouraged you to have a little bit more confidence just broadly speaking as you go into the second half?

I think the midpoint of our guidance is consistent with the approach that we've taken since the first of the year when it comes to the timing and start of large projects and our visibility into the gas business. So I would say the midpoint of our guidance has very little uncommitted gas in there. Our non -- no uncommitted gas for the year. Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just as it relates to the pipelines. Typically, the winter months have been the bidding season for the large-diameter stuff. You kind of mentioned in your press release here that you're expecting a couple of large projects come forward. With the winter months a few months off still, do you think that the seasonality of those pipeline bookings could maybe change this year and come earlier than it normally has in the past?

Yes, I think you're going to see a change in the seasonality of awards probably over the next 2 to 3 years because of the amount of large, multiyear potentially projects that are going to be proposed to bring liquids from Canada and from these liquid shale plays to refinery centers. So the normal cyclicality of this business could provide more visibility on big diameter -- large-diameter, long-haul pipe for probably at least 2 to 3 years. That's what we think will occur. We're pretty confident that, that's what we're going to see going forward.

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

This is Shawn on for Ahmar. I noticed on the balance sheet, you guys took out some long-term debt this quarter. I'm wondering if you could kind of walk us through what prompted that and how you're using it.

I'm not sure I understood the second part of your question or heard the second part. But relative to the debt, back to the working capital demands in the quarter, we've had substantial growth. And then as we talked about some of the aspects of Sunrise, it takes some draws on our cash. But in addition, we closed an acquisition in the quarter, which was about $26 million of cash. And we also put the additional investment in Howard Energy, which we talked about in the first quarter, which is an additional $52 million of cash. So those things combined just took some short-term cash needs. I'd say that by the end of the year, we wouldn't expect to have any borrowings outstanding.

Great. That's helpful. And I wonder if you could just take a bigger picture question here. I mean, we talk a lot about kind of the challenges of an election year. The outlook that as we get past the election this year that we're going to see some acceleration of work in 2013 or just to kind of get your thoughts on that.

Well, we haven't quantified or given any guidance for '13, but there is nothing that doesn't lead us to believe that '13 is going to be a very strong year from what we have in backlog today and what we expect will happen going forward in all of our segments, really. I mean, we have momentum in all of our segments and we haven't seen any reason to believe that '13 won't be a very strong year. It doesn't matter who wins the election. Infrastructure is still going to be one of the primary objectives of either administration. So we're feeling confident going forward.

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

My first question is on pipeline integrity. Can you give us an update on that aspect of pipeline. And my second question specifically deals with Canada. Can you give us a little more color on Canada's operations both in the electrical and the pipe side for this last quarter?

Yes, I mean, I think the Hanna award is just -- reflects the opportunities in Canada. There is a similar build opportunities in Canada as there are in the U.S. It's just occurring probably a year or 2 later than what the U.S. experienced. I mean, that's reflected not only by Hanna, but the Northwest Transmission Line. So that works out in about those 2 projects and we look forward to executing and growing our businesses in the Canadian market. The pipeline integrity business, it's going to be a strong business. I think that's an area of our business that can grow more than any other part of our business, but it's growing off of a smaller base and I think that's going to materialize over time. That's a longer-term growth opportunity for us that, I think, could be something material in 3 to 4 to 5 years from now but it seems the regulations are going to draw a significant amount of construction and rehabilitation efforts in the pipeline market.

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

Jim, you mentioned that you have a pretty high level of utilization. I was hoping that you might be able to shed some color on whether or not this makes you a little bit more selective in the jobs that you accept and how you see potentially expanding the utilization and -- or at least your capacity to handle similar levels of utilization going forward, and then whether or not the current high levels of activity are impacting labor rates and if you see that out there on the horizon.

Well, the labor -- let me address the labor rates first. We're under multiyear agreements with -- we're in the pipeline unions, the different unions that are associated with the pipeline industry. Those are multiyear agreements. Labor rates aren't going crazy right now for us. I mean, they're multiyear agreements that we negotiate when they expire, very similar to the electric business. We're not utilizing our big pipe equipment right now. And we're very comfortable that when the big pipework comes that we're going to be able to provide the necessary resources and execute on those projects. It was imperative for us to maximize utilization of our people and what equipment that we could share on shale pipework to move back toward a profitable segment. So that was an imperative objective for us. But we're certainly well positioned strategically to not only keep that work ongoing in the shales, but to capitalize on opportunities in the big pipework. Very similar to the electric route. Everybody was worried about how we were going to move from being on 2 transmission projects to 12, and we were able to deliver there, from a resource standpoint. And we're just as confident that we're going to be able to capitalize on the pipeline market as it expands as well.

My follow-up question, I wanted to ask if you could give us an update on your initiative in combined cycle power plants, where you stand on that and what your potential outlook is for bookings in that market over the course of the year.

That's a niche market for us that we're trying to greenfield into. And some of that work has been pushed out a little bit further than what we thought it would from a standpoint of accelerating, the market accelerating, which is okay, because we're using our renewable folks into that type of business. And our renewable folks are very active right now, building solar plants. And the wind market has also picked up somewhat. So it's a niche market for us. It's not immaterial today. Hopefully, we'll be able to talk more about that. It's a growth area for us in '13 or even in '14, but it's more of a future opportunity for us, not something that is really going to materialize anytime near soon.

Our next question comes from the line of Adam Thalhimer with BB&T Capital Markets. Adam R. Thalhimer - BB&T Capital Markets, Research Division: On the -- with regards to your outlook for the long-haul pipeline segment, are you bidding on those jobs yet? And if not, when do you expect to see those bids come out?

We're having discussions with customers, okay, and nothing's really formally come out to bid right now. We're just having discussions with customers about capacity concerns into '13 and '14 because the industry is going to be tight. So we -- like I said in my prepared remarks, we think that this will become clear to everyone as we get into the fourth quarter. And certainly into the first quarter, we'll have much more visibility on what's going on in the big pipe market. But we haven't bid anything to date yet, no. Adam R. Thalhimer - BB&T Capital Markets, Research Division: Okay. And then I wanted to ask secondly on telecom. What are the atmospherics like in that business right now? And are there any catalysts there, say, over the next 12 months?

Yes. I mean, I think right now, we're at the height of stimulus construction and things are going really, really well. And I don’t anticipate that, that is going to lighten up anytime soon. I mean, stimulus is going to take us well into '13 and probably to the end of '13. The Universal Services Fund is a big opportunity. That's a program that's almost like a federal stimulus that we think will provide subsidies to the telecom market equal to what we're seeing in stimulus today as we get beyond '13. So that's a huge potential opportunity that could keep our telecom business strong beyond stimulus as well as many of our customers are starting to move forward with capital projects beyond stimulus. Stimulus really got them a head start on their strategic objectives. So we're feeling pretty good about telecom right now going forward.

[Operator Instructions] And our next question comes from the line of Joe Ritchie with Goldman Sachs.

The first question is on the gas business, just a follow-up to a question earlier. Your revenues were down sequentially the last 2 quarters in that business, but the margins improved significantly. So I'm just trying to get an understanding, get my head around that, what were the big changes between this quarter and the last couple of quarters where you were able to increase the profitability of that business?

Yes, this is Derrick. Actually, it's similar to our discussion of second quarter of this year versus second quarter of last year in that there were some weather impacts that impacted a few of the jobs in the fourth quarter and the first quarter. At the same time, from a revenue perspective, we had the wrap-up of at least one large diameter pipeline job in the first quarter. We didn't have any of that work in the second. So you had kind of a decrease in revenue because of that.

So the right way to think about it is, weather impacts really have that kind of ability to change your profitability on those projects, and it seems like this quarter was a much cleaner, from a weather perspective, than it had been in previous quarters. Is that right?

Yes, weather actually is an impact, but we also established ourselves in the shales. And we weren't in the shales last year at this time as well. So that's going to help us as well in the second quarter of this year, certainly, against the second quarter of last year.

Okay. And I guess just a follow-up question there is, you're still not at your target of 9% to 12% margins in that business and my understanding is that there is -- in order to get to 9% to 12%, you're likely going to need to book some of these large-diameter pipe projects. And so maybe help me understand your confidence, I guess, on the timing of some of these projects, Keystone being one of them, one that we haven't talked about yet today.

Well, again, we're confident that Keystone and other projects will go forward in '13 and '14 because of the discussions we've been having with customers. And not only us, but other contractors in the industry have -- will give you that same data point. You will see big pipe taking liquids from these liquid-rich shale plays and the Canadian oil sands go to refining centers primarily in the Gulf of Mexico. Look at the expansion plans in the capital that's going into expanding these refineries. You haven't seen that in decades. That's all associated -- or primarily associated with liquids coming from these shales. Right now, they're railing and trucking product. That's a very inefficient means of transporting products. Once they get enough gathering in place, gathering systems in place, you will start seeing big pipe built. And I think that, from what we're hearing from our customers, the big pipelines are going to start coming in '13 and '14. We do need to get some of that big pipework in order to get to that 9% to 12% operating income target. And we're confident that we'll see that big pipework come sometime in '13 and certainly into the '14 and '15 time frame.

And we have a follow-up question from the line of Will Gabrielski with Lazard Capital Markets.

Jim, can you quantify what underutilization of the big pipeline equipment, what impact that had on the natural gas margin in Q2?

It's mid single digit operating income to the 9% to 12% operating range. I mean, the primary reason that we have that delta in margins is because we have higher margin work on the big pipework, as well as underutilization of equipment. So I don't think we can quantify it any better than that, really. I mean that direction is what it does for you.

Okay, that's helpful. And then just quickly on working capital, where that's going to trend maybe over the next few quarters based on what you have in hand today?

Yes. I think that the biggest driver of working capital is obviously our receivables and DSOs, and I think that what we'll see is that by the time we get to the end of the year that, that will start to trend downward. Historically, working capitals run about 15% of revenues and -- but as we go forward, a lot of revenue is coming up right now. And some of these things can get tied up in some of these larger jobs, but I'd say that you can look at DSOs being able to be improved.

And our next question is from the line of Tahira Afzal with KeyBanc Capital Markets.

This is Saagar again. I have a quick question -- I apologize if I missed this in Derrick's commentary earlier. But the rise that you -- the ramp that you guys had with the Sunrise Powerlink project, just finishing that up in the second quarter, did that have -- how much of a damper did that have on your electric power operating margins? What sort of impact could we see going forward from the change order? And is that built into your updated guidance?

Yes, there wasn't any impact relative to margins. I mean, that job has recorded consistent margins throughout the period. And as it relates to -- I think the second part of your question is kind of what risk profile. And we believe that we're in substantial conversation with the customers such that the change order will come through and be collected at some point in time between now and the end of the year. It's tough to predict, I guess, the change order effect as far as when it will be settled, but we're pushing for settlement as soon as possible.

Okay, perfect. And I'm assuming that's built into your guidance then?

Well, that job is complete at this point. So relative to an income impact, there wouldn't -- there will not be any income impact.

And ladies and gentlemen, this does conclude the question-and-answer session. I would like to turn the call back to management for any closing remarks. Please go ahead.

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

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