10-QPeriod: Q3 FY2015

QUANTA SERVICES, INC. Quarterly Report for Q3 Ended Sep 30, 2015

Filed November 6, 2015For Securities:PWR

Summary

Quanta Services, Inc. reported a significant decline in revenues and profitability for the third quarter of 2015 compared to the same period in the prior year. Revenues decreased by 9.6% to $1.94 billion, primarily due to a slowdown in the electric power infrastructure services segment, impacted by reduced customer spending and project delays related to regulatory and permitting issues. Gross profit saw a steeper decline of 30.2% to $235.2 million, with gross margin shrinking to 12.1% from 15.7%, attributed to a less favorable revenue mix (more lower-margin smaller projects) and increased competition. The company also reported a substantial net income of $219 million, significantly boosted by a $171 million after-tax gain from the sale of its fiber optic licensing operations, which was completed in August 2015. Excluding this gain, the underlying operational profitability would have been considerably lower. Financially, Quanta Services significantly reduced its debt levels, with long-term debt decreasing from $72.5 million at the end of 2014 to $348.2 million net of current maturities, though this was largely driven by increased borrowings under its credit facility. The company also repurchased a substantial amount of its own stock during the quarter, spending over $1 billion under its new share repurchase program. While the sale of the fiber optic business provided a significant cash infusion, the core operational segments faced margin pressures and revenue headwinds.

Financial Highlights

51 data points
Beta

Revenue

$1.94B

12.1% Gross Margin

Net Income

$216.39M

11.2% Net Margin

EPS (Diluted)

$1.15

Total Assets

$5.37B

Cash & Equivalents

$49.19M

Free Cash Flow

$60.93M

Financial Statements
Beta
Revenue$1.94B
Gross Profit$235.22M
SG&A Expenses$145.69M
Operating Income$80.88M
Interest Expense$2.02M
Net Income$216.39M
EPS (Basic)$1.15
Shares Outstanding (Basic)188.95M
Shares Outstanding (Diluted)188.96M

Key Highlights

  • 1Revenues decreased by 9.6% year-over-year to $1.94 billion for the third quarter of 2015.
  • 2Gross profit margin declined to 12.1% from 15.7% year-over-year, indicating increased cost pressures and a less favorable revenue mix.
  • 3Net income attributable to common stock was $216.4 million, heavily influenced by a $171 million after-tax gain from the sale of fiber optic licensing operations.
  • 4The Electric Power Infrastructure Services segment saw revenues decrease by 15.3% year-over-year.
  • 5The Oil and Gas Infrastructure Services segment's revenues increased slightly by 0.9% year-over-year, but operating income decreased significantly.
  • 6The company repurchased approximately $1.03 billion of its common stock in the first nine months of 2015, including a substantial accelerated share repurchase program.
  • 7Cash and cash equivalents decreased significantly from $190.5 million at the end of 2014 to $49.2 million at the end of the third quarter of 2015.

Frequently Asked Questions

The sale of the fiber optic licensing operations, completed in August 2015, resulted in a significant after-tax gain of approximately $171 million, which substantially boosted net income for the quarter. This gain from discontinued operations is a key factor in understanding the reported net income.

The decline in gross profit margin was attributed to a combination of factors, including lower revenues from higher-margin large electric transmission projects, a shift towards smaller, lower-margin transmission work, increased inefficiencies from transitioning between projects, and competitors aggressively pursuing volume to cover fixed costs. Additionally, the Oil and Gas segment was impacted by lower mainline transmission revenues and reduced demand due to lower oil prices.

Despite the substantial cash generated from the sale of its fiber optic business, Quanta Services' cash and cash equivalents decreased from $190.5 million at the end of 2014 to $49.2 million by the end of Q3 2015. This reduction was largely due to significant share repurchases, totaling over $1 billion during the first nine months of the year, including an accelerated share repurchase program. The company has a $1.325 billion senior secured revolving credit facility, with $667.3 million available as of September 30, 2015, providing liquidity.

The Electric Power Infrastructure Services segment experienced a revenue decline of 15.3% year-over-year, with operating income decreasing by 26.3% due to lower revenue mix and project timing. The Oil and Gas Infrastructure Services segment saw a slight 0.9% revenue increase, but operating income declined significantly, impacted by lower oil prices, reduced demand, and shifts in project timing and mix.