10-QPeriod: Q2 FY2011

QUANTA SERVICES, INC. Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 5, 2011For Securities:PWR

Summary

Quanta Services, Inc. (PWR) reported a significant increase in revenue for the second quarter and first six months of 2011 compared to the prior year, driven primarily by a surge in Electric Power Infrastructure Services. This growth was bolstered by increased customer capital spending and the contribution of the Valard acquisition. However, this top-line growth was accompanied by a notable decline in gross profit and operating income, particularly due to challenges in the Natural Gas and Pipeline Infrastructure Services segment and lower margins in Electric Power Services. The company's backlog saw a substantial decrease from December 31, 2010, to June 30, 2011, indicating a shift in project pipelines. Despite revenue growth, a significant drop in operating margin, especially in the Natural Gas segment which posted an operating loss, presents a key concern for investors. The company is actively managing its cash position and recently amended its credit facility to provide greater financial flexibility.

Financial Highlights

50 data points
Beta

Revenue

$904.78M

15.6% Gross Margin

Net Income

$31.80M

3.5% Net Margin

EPS (Diluted)

$0.15

Total Assets

$4.29B

Cash & Equivalents

$380.38M

Free Cash Flow

$3.95M

Financial Statements
Beta
Revenue$904.78M
Gross Profit$140.79M
SG&A Expenses$89.49M
Operating Income$57.73M
Interest Expense$255K
Net Income$31.80M
EPS (Basic)$0.15
EPS (Diluted)$0.15
Shares Outstanding (Basic)214.83M
Shares Outstanding (Diluted)215.02M

Key Highlights

  • 1Total revenues increased by 16.1% to $1.01 billion for the three months ended June 30, 2011, and by 14.9% to $1.86 billion for the six months ended June 30, 2011, compared to the prior year periods.
  • 2Electric Power Infrastructure Services segment revenue surged by 44.0% ($203.7 million) for the quarter and 34.1% ($313.4 million) for the six months, largely driven by increased customer capital spending and the Valard acquisition.
  • 3Gross profit decreased by 1.2% to $154.1 million for the quarter and by 21.1% to $225.0 million for the six months, with gross margin declining to 15.2% and 12.1% respectively, from 17.9% and 17.6% in the prior year.
  • 4The Natural Gas and Pipeline Infrastructure Services segment experienced a revenue decrease of 20.3% ($53.5 million) for the quarter and 14.5% ($65.6 million) for the six months, shifting to an operating loss of $1.2 million for the quarter and a loss of $38.2 million for the six months.
  • 5Total backlog significantly decreased to $3.17 billion as of June 30, 2011, from $6.90 billion as of December 31, 2010, with a particularly sharp drop in the Electric Power segment backlog.
  • 6The company reported a net income attributable to common stock of $31.8 million for the quarter and $14.2 million for the six months, down from $33.0 million and $56.7 million, respectively, in the prior year periods.
  • 7Quanta Services amended its credit facility on August 2, 2011, increasing it to $700 million and extending the maturity to August 2, 2016, providing enhanced financial flexibility.

Frequently Asked Questions

The primary driver of revenue growth is the Electric Power Infrastructure Services segment, which saw a significant increase due to higher customer capital spending and the contribution from the acquired Valard business. The company is also seeing opportunities in renewable energy projects and transmission system upgrades.

Despite revenue growth, gross profit and operating income have declined. This is attributed to lower overall revenues from natural gas transmission projects, completion of higher-margin electric transmission projects in the prior year, and increased costs related to performance issues and adverse weather in the Natural Gas and Pipeline segment, which resulted in an operating loss for the period.

The company's total backlog significantly decreased from approximately $6.9 billion at the end of 2010 to $3.17 billion by mid-2011. This substantial reduction, particularly in the Electric Power segment, suggests a shift in project pipelines and may indicate a more challenging near-term revenue outlook for some segments, although the company anticipates future project awards.

The Electric Power segment shows promise due to grid upgrades and renewable energy initiatives. The Natural Gas and Pipeline segment faces cyclical challenges but sees long-term potential in unconventional shale development. The Telecommunications segment anticipates growth from broadband deployment and wireless network upgrades. The Fiber Optic Licensing segment continues to experience growth through geographic expansion.