Quanta Services, Inc. — FY2013 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2013. This is an annual filing, not a standalone quarterly report; selected fourth-quarter results are included. Quanta provides specialty infrastructure contracting services in electric power, oil and gas, and fiber-optic networks, principally in North America.
Financial performance and liquidity
| Metric | FY2013 | FY2012 |
|---|---|---|
| Revenue | $6.523 billion | $5.920 billion |
| Gross profit / margin | $1.055 billion / 16.2% | $937.7 million / 15.8% |
| Operating income / margin | $526.9 million / 8.1% | $465.1 million / 7.9% |
| Net income from continuing operations | $421.3 million | $305.7 million |
| Net income attributable to common stock | $401.9 million; $1.87 per diluted share | $306.6 million; $1.44 per diluted share |
| Cash from continuing operations | $446.6 million | $166.8 million |
| Capital expenditures | $263.6 million | $209.4 million |
Operating cash flow less capital expenditures was approximately $183 million. At year-end, cash and cash equivalents were $488.8 million and working capital was $1.270 billion. Quanta had no revolving-credit borrowings, $240.3 million of letters of credit outstanding and $1.08 billion available under its $1.325 billion secured revolving facility, which matures in 2018. Balance-sheet debt consisted of $2.2 million of current capital leases and notes; no long-term debt was reported.
Backlog rose 25% to $8.728 billion, including $5.000 billion expected to be realized within 12 months. Electric power represented 68.7% of revenue, oil and gas 28.7%, and fiber optic and other 2.6%.
Material changes versus FY2012
- Revenue increased 10.2%. Oil and gas revenue rose 21.8% to $1.870 billion, reflecting shale-related pipeline activity and acquired businesses. Electric power revenue rose 6.5% to $4.481 billion, partly offset by a $139.7 million decrease in emergency-restoration revenue after Hurricane Sandy boosted 2012 results.
- Oil and gas operating income improved to $138.5 million from $55.4 million; segment margin increased to 7.4% from 3.6%, reflecting better project execution and less weather-related cost pressure.
- Electric power operating income was nearly flat at $521.9 million, while segment margin declined to 11.6% from 12.4%, partly because emergency-restoration work generally carries higher margins.
- Fiber optic and other revenue decreased 3.6% to $172.6 million; operating income declined 9.6% to $55.4 million, affected by higher maintenance and startup costs, a tax charge, and lower ancillary telecom work.
- Quanta acquired six businesses for approximately $341.1 million in cash and 3.55 million shares. It sold its HEP investment for $220.9 million, recording a $112.7 million pretax gain. The gain materially contributed to reported earnings and should be distinguished from recurring operating performance.
Outlook, risks and unusual items
- Management described opportunities in grid upgrades, transmission and distribution reliability, shale-related gathering and pipeline construction, pipeline integrity work, and offshore services. It expected electric-power backlog to remain strong through 2014 and saw potential for improved mainline pipeline activity, while emphasizing that project timing remained uncertain.
- 2014 capital expenditures were projected at $300 million to $325 million, including $50 million to $60 million for fiber networks. Management expected funding from operating cash flow, cash on hand and the credit facility. No specific revenue or earnings guidance was provided in the supplied filing text.
- Backlog is an estimate, not a GAAP measure; many master service agreements do not guarantee work volumes and can generally be terminated on 30 to 90 days’ notice. Project delays, cancellations, weather, permitting, fixed-price overruns, labor shortages, competition and customer financing constraints could affect results.
- Sunrise Powerlink: Quanta recorded approximately $165 million related to a disputed change order as a long-term receivable. Arbitration was scheduled for March 2015; the customer counterclaimed for approximately $32 million. An adverse outcome could materially affect results and cash flows.
- Pension exposure: The ultimate liability tied to Quanta’s Central States pension-plan withdrawal remains uncertain and could exceed the $32.6 million previously accrued. A separate acquired-company withdrawal demand included $4.3 million outstanding at year-end.
- Other contingencies include an unresolved arbitration in which a subsidiary seeks about $16.5 million and faces a counterclaim of about $79.5 million. The filing warns that an adverse outcome could result in a significant uninsured loss.
- Insurance deductibles for general and auto liability increased from $5 million to $10 million per occurrence in 2013. Self-insurance accruals were $161.8 million gross at year-end.
- Management and the auditor reported effective internal control over financial reporting as of year-end; the assessment and audit excluded 2013 acquisitions, representing 10.1% of assets and 3.9% of revenue.
Important facts for investors to verify
- How much of FY2013 earnings growth was recurring, given the $112.7 million HEP sale gain and tax benefits from reduced uncertain-tax-position reserves.
- Collection and arbitration outcomes for the $165 million Sunrise Powerlink receivable, including the customer’s counterclaim.
- Whether backlog converts to revenue and profit, particularly under MSAs that lack committed work volumes.
- The final Central States withdrawal liability and any required additional pension contributions.
- Whether 2014 capital spending, acquisition activity and fiber-network investment remain consistent with available cash and credit capacity.
- How segment margins develop as emergency-restoration revenue normalizes and oil-and-gas project activity, weather and execution risks evolve.