Greetings ladies and gentlemen, and welcome to Quanta Services' First Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Mr. Kip Rupp.

Great, thank you and welcome everyone to the Quanta Services First Quarter 2019 Earnings Conference Call. This morning we issued a press release announcing our first quarter results, which can be found in the Investors and Media section of our website at quantaservices.com along with a summary of our 2019 outlook and commentary that we will discuss this morning. Please remember that information reported on this call speaks only as of today, May 2nd, 2019 and therefore you are advised that any time sensitive information may no longer be accurate as of any replay of this call. This 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 include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control and actual results may differ materially from those expressed or implied. For additional information concerning some of these risks, uncertainties and assumptions, please refer to the cautionary language included in today's press release along with the company's 2018 Annual Report on Form 10-K and its other documents filed with the Securities and Exchange Commission which are available on Quanta's or the SEC's website. You should not place undue reliance on forward-looking statements and Quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third-party regarding the subject matter of this call. Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA and free cash flow. Reconciliations of these measures to their most directly comparable GAAP financial measures are included in our earnings release. Lastly, if you would like to be notified when Quanta publishes news releases and other information, please sign up for email alerts through the Investors and Media section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke?

Thanks, Kip. Good morning everyone and welcome to the Quanta Services first quarter 2019 earnings conference call. On the call, I will provide operational and strategic commentary before turning it over to Derrick Jensen, Quanta's Chief Financial Officer, who will provide a detailed review of our first quarter results. Following Derrick's comments, we welcome your questions. This morning we reported record first quarter results, with revenues of $2.8 billion and GAAP and adjusted diluted earnings per share of $0.82 and $0.96 respectively. Backlog at the end of the quarter was a record $12.6 billion, which we believe supports our expectations for this year and bodes well for opportunities for multi-year growth. It is worth highlighting that backlog continues to grow without meaningful large project awards and is primarily the result of incremental growth of programmatic spending with existing and new customers. As a result of our solid first quarter results, increased visibility for our Electric Power Services and confidence in our ability to safely execute, we are increasing our full-year financial expectations for 2019. We are pleased with the growth of our utility-focused operations and continue to enhance the stability of our business portfolio. We also continue to evaluate opportunities to strategically expand our geographic presence and diversify our service lines. These strategies are designed to mitigate many aspects of risks in our business, including customer, project, permitting, geographic, execution, weather and other risks. We believe Quanta's diversity, scope and scale and capabilities are unique in our space and set us apart both competitively and in investments. Quanta is a construction led specialty infrastructure solutions provider, whose portfolio of companies, services and geographic diversity position us to profitably grow through various cycles over time. Our electric power operations reflect broad based business strength in the quarter, with increased demand for…

Thanks, Duke, and good morning everyone. Today we announced record first quarter revenues of $2.8 billion, 16% increase over the first quarter of 2018. For the first quarter of 2019, net income attributable to common stock was $120.5 million or $0.82 per diluted share. Adjusted diluted earnings per share, and non-GAAP measure was $0.96, included in GAAP and adjusted diluted earnings per share for the first quarter of 2019 is the recognition of $60.3 million or $0.30 per diluted share, attributable to previously deferred earnings related to the Fort McMurray West electric transmission project. Excluding this benefit, GAAP diluted earnings per share increased $0.28 or 117%. And adjusted diluted earnings per share increased $0.27 or 69% compared to the first quarter of 2018. Discussing our segment results, our electric power revenues increased to 6% when compared to the first quarter of 2018 to $1.66 billion and represents record first quarter revenues for the segment. This increase reflects continued momentum in our base business due to robust transmission, distribution and communication spending by our customers. The strength of the base business in the first quarter of 2019 offset approximately $106 million in reduced revenues from larger projects, as well as lower levels of emergency restoration services compared with the first quarter of 2018. As Duke mentioned, in the first quarter of 2019, the Fort McMurray project was energized. However, the project had substantially reduced activities compared to the first quarter of 2018. In addition, while emergency restoration services decreased relative to the first quarter of 2018, we still exceeded our expectations, generating approximately $58 million of revenues during the quarter. Operating margin in the electric power segment was 9.7% in the first quarter of 2019, as compared to 9% in the first quarter of 2018. Excluding our communications operations, which are…

Thank you. Ladies and gentlemen, we will now be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Tahira Afzal with KeyBanc Capital Markets. Please proceed with your question.

Thank you. Great quarter, folks, first of all. I guess my first question is in regards to the pipeline space, obviously -- or I should say, oil and gas, obviously a very strong quarter for you as well on the margin side. Within that I would love to get a sense of how the pipeline integrity business is doing? I know you've already focused on some of the margins there as well and are we seeing the improvements you were hoping for?

Thanks, Tahira. When we look at the pipeline segment, our LDC business, the utility side of it's doing very well. We came through the quarter quite nicely, we said we would focus on the earnings, the margins there and we have, and I believe you're starting to see some of that show up in the quarter, we look at our industrial segment. It's certainly performing well, we said it was at record levels and we think that would stay that way throughout 2019. So that's done very well. Our big pipe, we're seeing activity there, we have not started yet really in the season. So that'll be in the latter half of the year. When we look at Canada, we are seeing some comeback of our midstream business in Canada as well as in the Bakken and Texas. So overall, the things that we're working on are starting to come together. We're starting to see some margin pull through in the segment and especially on the underlying business with the integrity and our utility side of that business. So we're pretty proud of what we're able to accomplish.

Okay, great. And the second question is on the transmission side, Duke, you talked about the $3 billion, but do you know when we tally our prospects out there now and to your point, we've seen some other ones in Canada has finally come back on the map. Could that end up being a conservative estimate for you? Just based on what we're seeing and based on the last cycle, we saw right back in 2013. Everything kind of piles up together. Is there a bias for that $3 billion to be revised up going forward?

I think when we talk about our large projects, we're pretty conservative on any side of that and certainly the numbers that we're chasing are much larger than that. I think it's more so, just to say that when we look at it, there still that $3 billion on both sides of the business out there, and have lot of large projects that number fluctuates. But certainly, that -- if you look at our pipeline, it's much bigger than those numbers.

Thanks, Duke and congrats to your team.

Thank you.

Thank you. Our next question comes from the line of Noel Dilts built Stifel. Please proceed with your questions.

Thanks and congratulations on a good quarter. Just given that we're in such a tight labor market and I know that Quanta has taken the lot of actions to try and ensure that you have a strong supply of labor. Can you comment on just generally from a high level, if you do you think that there the labor is getting tight in any of your markets. And if basically your position as an employer of choice is beginning to become more valuable?

Thanks, Noelle. When we look at Quanta in general, I think -- that's what we focus on a specialized skilled labor and our ability to perform. So for us, a tight labor market bodes well goes well and I think we've done a necessary investment and we've talked about a $100 million of investment with labor training -- up training. So I think all those things that we've done in the past are starting to pay dividends in the future. And I do think when we move forward labor will be key for us to have some growth and also make sure that we are able to service our clients on this base business type utility work for the foreseeable future. So we'll continue to concentrate ourselves on how to get labor pull through and make sure that we are training them early and getting into the field, where we can be more productive. So that is a key for our business going forward.

Okay, thanks. And second, there's just been a little bit of discussion at FERC that came up a few months ago talking about kind of rates of return allowed on transmission and distribution lines. Any kind of high level thoughts on how that will shake out and if there'll be any impact on the industry?

We're seeing different things in the States, even on some of the FERC 1000 there are some legislation in Texas on basically return -- allowing the incumbent to have first right of refusal on any FERC line. So things like that -- Look, I think you're going to see consistent returns, they are not going to get one way or the other too far and people who want to invest in infrastructure in the US for the foreseeable future, I don't think FERC, they want to build lines. We have a great Commissioner there, Chairman. So I think -- the way we see it FERC will enable construction for a long -- infrastructure builds for a long period of time.

Great. Perfect, thank you very much.

Thank you. Our next question comes from the line of Andrew Kaplowitz with Citi. Please proceed with your question.

Good morning, guys, nice quarter.

Thank you.

Duke, you talked about fire or storm hardening and grid modernization in the past, but it seems like the focus in the US and the USS grid [ph] has continue to ramp up. But it looks like you grew very strong double digits in the quarter in your base business. So can you give us more color to how long the higher level of spend could last, do you see those build-out in the US led [ph] as a multi-year build out and your visibility into double-digit base growth now at least to the end of this year?

I think we've talked about it previous quarters and even last year, we were concentrated on growing our base business, which is around 90% of the company. And when you go back and pull back in the utility side of that, we think that piece will continue to grow kind of mid-single digits and then we stand by that's sustainable, all the things that you're seeing from start fire hardening, to storm hardening, the grid modernization, it's there, it's real. We need a modern grid, if you go into automation self driving, you're going to need a stable sustainable grid. There's tons of reports out there about it, but I think as far as we can see -- we see continued growth for our business TND space.

That's helpful. And then if I look at total backlog and pipeline industrial infrastructure did go up in the quarter despite you're saying -- there wasn't really any bigger projects that you book, so is this just what you've been talking about pipeline integrity midstream in general improving was the bigger projects I think you booked, is it really just acceleration in these sort of these businesses within the oil and gas business as well?

Yes. We didn't have a large project, per se in the quarter. But certainly these larger programs alliances and some things that we're doing on Industrial Services, we're starting to see those things come into backlog -- larger programs multi-year programs that we're able to kind of put in backlog now, but we don't announce those projects on at any given time, but they are large in nature.

Thanks guys.

Thank you.

Thank you. Our next question comes from the line of Chad Dillard with Deutsche Bank. Please proceed with your question. Mr. Dillard, are you sure your line is not on mute. Mr. Dillard? Okay, we'll move on to Jamie Cook with Credit Suisse. Please proceed with your question.

Hi, good morning. This is actually Kevin on for Jamie. Just a question on the free cash flow. Understanding the outstanding receivables from PG&E. I guess you have a sense of sort of the cadence of free cash flow for the rest of the year? And then, sort of related to that, are you still expecting broadly up to 50% conversion of adjusted EBITDA, because at the midpoint of your guidance, it looks like you need about $600 million of free cash flow in the remaining 9 months to achieve that. Thanks.

Yeah. We still expect our free cash flow to still be in that kind of the $300 million to $500 million range. From a cadence perspective, similar to our previous commentary, we think it'll be largely backend loaded. The seasonality, the year will still probably put a degree of pressure into the second and third quarter with a drift in the fourth. The largest portion of it by far will come in the fourth quarter, not uncommon though and it is relates to timing from a PG&E perspective, I would tell you that we have some visibility to be able to see some of that coming in kind of in the near term, potentially, a large portion here by the end of the second quarter. But there are some administrative things that we need to deal with as far as on our side and there is going through the administrative processes of getting those things through the system. So I think that in the second and third quarter type dynamic is when you see some of that recovery.

Thanks, that's helpful. And then you mentioned in the release and acquisition during the quarter, I was just wondering how significant that was, and which segment and then in general, there is the M&A pipeline, how is that looking and I don't know if you have any updated thoughts on capital allocation in general. Thanks.

Yes. The acquisition was the specialized aviation company that allows us to some critical path we have on transmission, distribution that was necessary for us, so that was a smaller acquisition that was meant to support our ongoing operations in North America. And as far as M&A again we're opportunistic out there, there's a good pipeline of great businesses that are more, there's nothing eminent or large in nature from our standpoint, but certainly the markets there and we've always been a company that's acquired, we have a strategy we'll stick to it.

Relative to size, it was a little less than about $50 million run rate revenues.

And as far as allocation -- as far as cash allocation we will continue on the same path we have in the past, which is basically, we look at acquisitions, stock buybacks as dividend. So we'll look at all of those to make sure that we're enhancing shareholder value.

Thanks guys.

Thank you. Our next question comes from the line of Adam Thalhimer with Thompson Davis. Please proceed with your question.

Hey, good morning guys. Nice quarter. How did -- Duke, how did stronghold do in Q1? And what's the outlook there for 2019?

I mean, I think we've talked about the record of our Industrial Services business and we won't get into specifics on stronghold. But in general that segment, industrial segment that's underneath and they're performing really well, better than our expectations. So we're really proud of that, we're really proud of kind of adding that service line to the pipeline and industrial segment. So from our standpoint, we see them having a record year this year and next year was just as good.

Good. And then I know Atlantic Coast is not in guidance. But do you expect what's the latest thoughts on the potential first sum activity this year?

We have very little expectation for Atlantic Coast this year. I think if you go back to what Dominion, Duke and others are saying it's a 2020, 2021 type build and we'll stick to their schedules.

Okay, thanks.

Thank you. Our next question comes from the line of Alex Rygiel with B Riley FBR & Company. Please proceed with your question.

Thanks, good morning and thank you for taking my questions.

Thanks Alex.

A couple of quick questions here, you mentioned something about a Latin American telecom project, can you go back through that and how big was that and is there anything that needs to come out of backlog or has that already happened?

No. The Latin America issue it was a P3 type project in Peru. And so we're well along in the project. We're just, it's been delayed for various reasons and country was necessary to kind of move this thing along as to go to some sort of arbitration at some point here. So we're working through that with the client and I think we'll get it resolved and move forward. We have a very small piece left to finish out the project.

Yes, it's only about $30 million expectation for 2019. So it's relatively small.

And then you also mentioned a $8 million charge in the industrial business of some sort, what was that again?

That was, previously, we had talked about the processing facility and some liquidated damages that was the same processing facility. We had some delays as far as getting it complete and primarily most of that is around that delay and liquidated damage is on that project.

Very helpful. And then any other sort of macro views on the world of telecom? It seems like a number of telecom customers might have kind of pulled back CapEx in the first quarter here. Is that more of a technology shift or timing shift in your mind, or is that a longer-term change in their views on how to spend CapEx?

Yes, Alex, when we look at it, I mean, I think it's necessary for the fiber build. We're starting to see some of that technology and 5G play into that and their thinking. So as technology advances in 5G, you'll start to see some movement in fiber, but overall it's necessary for them to have big backbone, whether it's data centers or whatever it may be. So we continue to see quite elevated capital spends for the foreseeable future and the business, certainly timing moves around a bit, we're in good shape from our clients and the way we see it, but we're following it fairly closely. We don't see a whole lot of fundamental change, I would say 5G is probably when it gets into the dense -- out of the dense areas and over into your communities, suburbs and such, it will take longer as they use the electrical distribution system. I don't think that will be as easy as from a permitting standpoint as other things have been in the past. So that'll be a challenge for the carriers to make sure that they're working with utilities, as they get into the distribution -- electric distributions side of it.

Thank you. Nice quarter.

Thanks, Alex.

Thank you. Our next question comes from the line of Andrew Wittmann with Robert W. Baird & Company. Please proceed with your question.

Hi, great. I guess my questions are probably going to be for Derrick. And I guess, I wanted to just talk about two other chunks of DSO and/or working capital cash flows. Specifically I think Derrick, you mentioned that the retainage on Fort Mac could move places on the balance sheet, presumably that means the cash is coming and soon. I was wondering the size of that and what other contingencies need to be released or box need to be checks to be able to get the Fort Mac cash fully in the door.

Yes, it's a reasonably sizable balance. I mean it's upwards to $90 million. It's moved from non-current to current, there isn't that much necessarily related to from a timing perspective as a hold up, it's just more kind of as you reached effective amortization this quarter, we've got to go through the final process of administrative by getting those mixed balances. I would tell you that we expect all of those remaining balances to be received tiered during 2019, probably in the second and third, maybe early part of fourth quarter time frame.

Helpful. And then I think you said that the PG&E receivable, the total size was 157 you're collecting a good chunk of that, but there still going to be odd $41 million that you did not comment on, what's the process for that and how should we think about that as it relates to your cash flows, balance sheet and potentially income statement as that plays out?

Sure. Previously, we had given guidance that we expected that those balances would be beyond 2019 as it stands here today for that remaining balance of no -- contract assumption we still yet have that belief that will be beyond 2019. In fact, for that balance we've actually moved it to non-current, will be in line with the kind of a normal process of going through administratively and we're working with the customer and the courts do that level of collection. We still have no pause relative to our position as it stands here today. We're not expecting that we will not receive full collection at this stage, we'll just be working through from a timing perspective, working with the related parties.

That's helpful. And then my final question I guess is just on your guidance. And I wanted to get, I guess, a different type of characterization of it. I mean first quarter I think you mentioned was ahead of expectations and you had mentioned that in the electric side you pulled some into 1Q with the strength here. So and then in these acquisition. So, Derrick when you look at the overall guidance hike, how much of that has it changed to the balance of the year or is this really just -- you did a little bit better in first quarter and that's, just, what's the impact on the balance of the year-to-year change in guidance?

Yes, I mean, relative to our own side of the equation and kind of looking it up from our modeling. I mean we did at a nice first quarter, but we have upped from a revenue perspective on both pipeline and electric power, a larger portion of electric power. So that is representing strengths to through the year. We see a higher degree of potential contribution coming still yet in the third and fourth quarter due to the expanding base business, as well as some of the storm hardening work that Duke has made reference to. So from our standpoint, we see as much of the upside happening in the latter portions of the year against our own expectations versus just the contribution of the first quarter.

Super. Thank you very much.

Thank you. Our next question comes from the line of Nick Amicucci with UBS. Please proceed with your question.

Hey guys, thanks for taking my questions. Quick question, just on, as we look for the outlook of electric margins. I mean, they were pretty strong in Q1, kind of approaching the high end of the range, you guys have noted that communications will dilute those margins a little bit throughout the end of the year? And so we just want to try and get some color around the trajectory you have on the -- within the communications business and how that kind of shapes up throughout the end of the year?

I mean, when you look at the communications business. I think it continues to strengthen, quarter-over-quarter and when you get into the fourth quarter, you may have some seasonality, but whoever working, I think in general, will be fine there. So we continue to strengthen and we'll be prudent about how we got it. But we still believe that business is capable of margins at parity to what our electric segment doing, electric divisions doing there in the segment. So we feel like it will strengthen throughout the year in the US especially.

All right, great. And then just shifting of the pipelines, you noted the Bakken and DJ as other basins within the US and in Western Canada as well. So just wanted to try and get some color on how active is the bidding in those regions and what kind of, I guess, how much of the pipeline portfolio do you think work in those regions and other non-Permian regions can account for moving forward?

I mean, anytime you have takeaway capacity, and you have drilling activity, you'll start to see the midstream comeback, as you'll see in the Appalachian once we get some big takeaway pipe build-out of the Appalachian, you'll start to see our midstream business come back underneath. So that's what's your seeing in Canada and Western Canada is also in the Bakken and DJ is you're seeing drilling activity and underlying that you're seeing the midstream business start to come back and we have a nice midstream business there in Canada that comes down into the Bakken region. So the activity there is robust. We like that business underneath the big pipe and it's pretty repetitive in nature. So we're working pretty hard at those regions and shales.

Alright, great, thanks a lot guys.

Thank you.

Thank you. Our next question comes from the line of William Newby with DA Davidson. Please proceed with your question.

Thank you and congrats on the great quarter guys.

Thank you.

I guess first of all on the pipeline side, Duke, I think you mentioned it briefly in response to Noelle earlier, but we've seen a couple of these Senate Bills and Texas pop up regarding kind of eminent domain reforms and just wondering if you have any more thoughts on where they have legs, I mean, particularly given that's in a stay that's historically been I think relatively favorable from a permitting standpoint in the past?

Yeah, I think, Texas is fine and we will continue to see a lot of infrastructure build here in the state. I don't think from a legislation standpoint will see any change material that's an energy stay if people want to build infrastructure if necessary, if necessary to move it down to LNG exports out of the Gulf Coast here. So we continue to see that build happening. I don't think anything from a regulatory standpoint, Texas for sure will cause out to have any impact. I would say that the federal administration did make some executive orders that are intended to help us and help the permitting process and give certainty to part process. So with that, I do think federally, you'll start to see some at least some certainty and what it takes to build pipe and once you get it through FERC it will be somewhat full but not to say you won't get sued and such, but I do believe that you will prevail if you get it through FERC. And so we like all the decisions and some of the executive orders that had happened in the quarter. And we do think in the future it will certainly help infrastructure and infrastructure builds in order to move gas and liquids down to the coast or whatever it may be.

Appreciate it. That's helpful. And then I guess -- back on the communication side. I'm wondering if you'd be willing to talk about what you're kind of mix is in that business? I mean it sounds like you guys are developing capabilities both in wire line and wireless and I guess where does that mix stand now, and where do you see it going over the next one to two years?

I mean, when you look at what we're doing now in the communications business, we're building backhaul fiber for the most part or ring fiber rings. We are doing some 5G work, but I would say for us where we really start to see us getting the wireless businesses when it starts to get in the distribution side of the business, electric distribution, it takes a different class of person to put it above the primary voltages on the distribution system. So, you will need kind of -- on the electric alignment to put that in the air and as that happens, as that they start -- the carrier start to work with utilities or the utilities even own fiber 5G per se that will bode well for Quanta. I think it's not 2019, it's more like 2020 to 2021 and beyond. And that's where I think we really start to see our wireless capabilities come into play. But again I think when you look at what we're doing there, we're working on it methodically. We see some -- we've saw the permitting challenges, we work through that, I like where we stand, I like our cadence and how we are performing in the business is getting more profitable quarter-over-quarter as we get scale out of these offices and our opportunities continue to increase.

Appreciate it. Thank you.

Thank you, ladies and gentlemen, at this time there are no further questions, I would like to turn the floor back to management for closing comments.

I'd like to thank the men and women in the field for the say performance in the quarter. They did exceptional. So we want to thank them, and thank you all for participating in our first quarter conference call. We appreciate your questions and your ongoing interest in Quanta. Thank you, this concludes the call.

Thank you, ladies and gentlemen, you may disconnect your lines at this time. Thank you for your participation.