Quanta Services, Inc. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013; balance-sheet figures are as of March 31, 2013. Quanta provides specialty infrastructure contracting, principally in electric power and natural gas and oil pipelines, plus fiber-optic licensing. The 2012 comparison is presented with the domestic telecommunications infrastructure business sold in December 2012 classified as discontinued operations.
Financial performance
| Metric | Q1 2013 | Q1 2012 | Change / context |
|---|---|---|---|
| Revenue | $1,585.7 million | $1,328.8 million | Up 19.3% |
| Gross profit / margin | $238.3 million / 15.0% | $186.1 million / 14.0% | Margin improved 1.0 percentage point |
| Operating income / margin | $119.3 million / 7.5% | $78.8 million / 5.9% | Margin improved 1.6 points |
| Net income attributable to common stock | $72.1 million | $45.7 million | Basic and diluted EPS: $0.34 vs. $0.22 |
| Operating cash flow, continuing operations | $44.1 million | $(73.5) million | Improved, principally on receivables collections |
| Capital expenditures | $57.6 million | $31.9 million | Investing cash outflow also included $8.5 million for affiliate investments |
Electric Power revenue rose 26.7% to $1.181 billion, largely reflecting higher customer capital spending; operating income rose to $132.6 million, but segment margin declined to 11.2% from 12.3% on lower margins for certain large transmission projects. Natural Gas and Pipeline revenue was nearly flat at $358.9 million, while the segment returned to operating profit of $10.4 million from a $10.5 million loss, reflecting fewer adverse-weather performance issues. Fiber Optic Licensing and Other revenue increased 15.7% to $45.8 million and operating income rose to $16.9 million.
Liquidity, debt and balance sheet
- Cash and cash equivalents were $366.6 million, down from $394.7 million at year-end 2012. Working capital was $1.36 billion; current assets were $2.186 billion and current liabilities $829.9 million.
- Quanta had no borrowings under its $700 million revolving credit facility; $516.4 million remained available after $183.6 million of outstanding letters of credit. The facility matures August 2, 2016. The company reported compliance with its covenants.
- Total liabilities were $1.324 billion and total equity $3.831 billion. The filing reports no revolver debt outstanding; a separate total funded-debt figure is not clear in the provided text.
- Cash declined $28.1 million in the quarter: $44.1 million operating cash inflow was more than offset by $65.6 million investing outflow and $5.0 million financing outflow.
Outlook, changes and key risks
- Management expects 2013 capital expenditures of $210–$225 million, including $35–$45 million for fiber-network expansion, funded substantially by operating cash, cash on hand and facility borrowings. No specific revenue or EPS guidance is provided in the filing text.
- Backlog was $7.040 billion at March 31, up from $6.987 billion at December 31; $3.823 billion was expected to be realized within 12 months. Backlog includes estimates under MSAs that may be terminable and does not assure future revenue.
- Management described opportunities in electric transmission upgrades, shale-related gathering infrastructure and pipeline integrity work, while noting regulatory, environmental and permitting hurdles, customer funding uncertainty, commodity-price cyclicality, project delays, weather, labor availability and competitive pricing. Results are seasonal and Q1 is typically the weakest quarter.
- Material estimates and contingencies include $222.4 million of contract change orders and claims included in contract prices while negotiations continue; customer acceptance and ultimate recovery remain uncertain. Two customers represented approximately 19% and 11% of billed and accrued receivables, and one customer generated about 14% of Q1 revenue.
- A settlement-in-principle was reached with the USDA over the Amador County wildfire claim, for an amount within available insurance coverage, but remained subject to written agreement and Department of Justice approval. Failure to finalize could expose Quanta to a significant uninsured loss. In a separate arbitration, a customer counterclaimed for approximately $79.5 million; no decision had been issued, and insurance coverage was disputed.
- The Central States multi-employer pension plan withdrawal liability remains disputed. Quanta had recorded $32.6 million; plan estimates cited in the filing range from $32.8 million to $40.1 million depending on the withdrawal date and scope.
- Other exposures include $2.12 billion of performance bonds (estimated completion cost $500.3 million), $239.0 million of maximum equipment lease residual-value guarantees, and $53.5 million of unrecognized tax benefits. Management said up to $11.5 million of tax benefits could decrease within 12 months.
- Quanta sold substantially all domestic telecommunications infrastructure services operations in December 2012 for approximately $265 million. The filing reports no material change in risk factors from its 2012 Form 10-K and states disclosure controls were effective.
Investor facts to verify
- Whether the wildfire settlement received final written agreement and DOJ approval, and whether insurance fully covers the settlement.
- Progress and outcome of the NGC arbitration and any related insurance recovery.
- Customer acceptance and collection of the large change-order/claim amounts and concentrated receivables.
- The final Central States pension withdrawal assessment, including potential liability above the recorded amount.
- Conversion of backlog into revenue and cash, especially given MSA cancellation rights, project timing risks and customer concentration.
- Actual 2013 capital spending and liquidity after planned investment, letters of credit and other commitments.