10-QPeriod: Q2 FY2003

QUANTA SERVICES, INC. Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 14, 2003For Securities:PWR

Summary

Quanta Services, Inc. (PWR) reported a net loss of $9.8 million for the second quarter ended June 30, 2003, a significant improvement from the $177.2 million net loss in the same period of the prior year. This improvement was driven by a substantial reduction in goodwill impairment charges, which were $166.6 million in Q2 2002. While revenues declined by 5.6% year-over-year to $408.3 million, largely due to continued customer capital spending reductions and economic downturns, the company managed to improve gross profit margins in the quarter to 13.1% from 11.1% in the prior year, primarily due to better margins on telecommunications revenues. Despite the revenue decline and an increase in bad debt expense to $19.0 million related to specific customer receivables, the company's operating loss narrowed considerably. Cash flow from operations was positive at $35.9 million for the quarter, bolstered by an income tax refund. The company's liquidity remains adequate, with $86.1 million in cash and cash equivalents at the end of the quarter, and no outstanding borrowings under its credit facility, though its borrowing availability is subject to EBITDA requirements. The company expects consistent demand from electric power and gas customers and stabilization from telecommunications and cable customers, while focusing on cost controls and right-sizing initiatives.

Key Highlights

  • 1Reported a net loss of $9.8 million for Q2 2003, a substantial improvement from a $177.2 million net loss in Q2 2002, primarily due to the absence of a large goodwill impairment charge.
  • 2Revenues decreased by 5.6% to $408.3 million in Q2 2003, attributed to decreased customer capital spending and broader economic downturn.
  • 3Gross profit margin improved to 13.1% in Q2 2003 from 11.1% in Q2 2002, driven by better margins on telecommunications revenues.
  • 4Selling, general, and administrative expenses decreased by 2.3% to $58.1 million, despite a significant bad debt expense of $19.0 million related to specific customer receivables.
  • 5Positive cash flow from operations of $35.9 million was generated in Q2 2003, aided by a substantial income tax refund.
  • 6The company maintains a strong cash position with $86.1 million in cash and cash equivalents at the end of the quarter.
  • 7Despite compliance with debt covenants as of June 30, 2003, management notes that further deterioration in operating performance or market conditions could impact future covenant compliance.

Frequently Asked Questions

The primary reason for the substantial reduction in net loss from $177.2 million in Q2 2002 to $9.8 million in Q2 2003 was the absence of a $166.6 million goodwill impairment charge that was recognized in the prior year's quarter.

Revenues decreased by 5.6% to $408.3 million in Q2 2003. This decline is attributed to ongoing reductions in capital spending by customers, difficulties in customer access to capital, and a general downturn in the national economy. Pricing pressures in a competitive market also contributed to lower revenues.

The company's liquidity appears solid, with $86.1 million in cash and cash equivalents at the end of the quarter and no outstanding borrowings under its credit facility. Management anticipates that current cash, cash flow from operations, and its credit facility will be sufficient to meet working capital needs, debt service, and planned capital expenditures for at least the next 12 months. However, they caution that further market deterioration or operational issues could impact their ability to comply with financial covenants.

Management highlights several risks, including further deterioration in the markets served, material changes in customer revenues or cash flows, adverse weather conditions impacting operations, and the potential for non-compliance with financial covenants under its credit facility and senior secured notes due to lower-than-anticipated operating performance. The company's access to borrowing capacity under the credit facility is also dependent on meeting certain EBITDA requirements.