Quanta Services, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2013. Quanta provides specialty infrastructure contracting, principally for electric power and natural gas and oil pipelines, plus fiber-optic licensing. The 2012 comparison reflects the domestic telecommunications operations sold in December 2012 as discontinued operations.
Financial performance and liquidity
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $1.474 billion | $1.386 billion | $3.060 billion | $2.715 billion |
| Gross profit / margin | $241.3 million / 16.4% | $212.9 million / 15.4% | $479.6 million / 15.7% | $399.0 million / 14.7% |
| Operating income / margin | $117.2 million / 7.9% | $98.3 million / 7.1% | $236.5 million / 7.7% | $177.1 million / 6.5% |
| Net income attributable to common stock | $70.2 million | $65.5 million | $142.3 million | $111.2 million |
| Diluted EPS | $0.33 | $0.31 | $0.67 | $0.52 |
| Operating cash flow from continuing operations | $117.8 million | $107.6 million | $161.9 million | $34.2 million |
- Q2 revenue rose 6.4%; first-half revenue rose 12.7%. Growth reflected higher customer capital spending and activity in power and pipeline work.
- Six-month capital expenditures were $139.4 million. Operating cash flow less capital expenditures was approximately $22.5 million. Cash declined $31.6 million from year-end to $363.1 million at June 30.
- At June 30, working capital was $1.38 billion. Quanta had no borrowings under its $700 million revolving facility, $179.2 million of letters of credit outstanding, and $520.8 million of remaining availability. It reported compliance with credit covenants.
- Total liabilities were $1.30 billion and total equity was $3.89 billion. The balance sheet lists no outstanding revolving borrowings; the filing text does not provide a clear separate total-debt figure.
Material changes and segment trends
- Electric Power: First-half revenue increased 14.9% to $2.23 billion; operating income rose 12.6% to $253.4 million. Six-month operating margin eased to 11.4% from 11.6%, mainly due to lower margins on certain major transmission projects. Q2 emergency restoration revenue was $26.1 million versus $12.5 million.
- Natural Gas and Pipeline: First-half revenue increased 7.2% to $744.9 million; operating income rose to $38.0 million from $4.5 million, and margin improved to 5.1% from 0.7%. Management cited better execution, shale-related activity, and less adverse-weather impact than in 2012.
- Fiber Optic Licensing and Other: First-half revenue increased 7.0% to $87.9 million, while operating margin declined to 35.5% from 36.5% amid higher overhead costs.
- First-half comprehensive income attributable to Quanta shareholders was $103.4 million versus $108.0 million, reflecting a $38.9 million foreign-currency translation loss in 2013.
- SG&A grew faster than Q2 revenue, partly due to compensation and $4.3 million of accelerated equity-award expense following the Executive Chairman’s retirement. Lower amortization of previously acquired intangibles partly offset SG&A growth.
Outlook, risks, contingencies, and unusual items
- Management described opportunities in electric transmission and distribution upgrades, shale-related gathering and pipeline work, and fiber licensing. It expected electric-power backlog to remain strong through the remainder of 2013 and into 2014, while noting uncertainty around project timing, permitting, weather, customer spending, and pipeline commodity cycles.
- Backlog was $7.51 billion at June 30, 2013, including $3.78 billion expected within 12 months. Backlog is an estimate, not a guarantee; many master service agreements can be terminated on 30–90 days’ notice.
- 2013 capital expenditure guidance was $210–$225 million, including $35–$45 million for fiber network expansion. Management expected to fund spending primarily from operating cash flow, cash on hand, and facility availability.
- Recognized contract change orders and claims totaled approximately $252 million, primarily related to one delayed and later accelerated electric-power project. Negotiations were ongoing, expected to continue into Q4 2013, and collection and final amounts remained uncertain. Management did not expect resolution to materially adversely affect results.
- Two customers represented 19% and 12% of billed and accrued receivables at June 30. One customer’s balance was substantially tied to the disputed change-order project. One customer represented 12% of first-half revenue.
- A pending arbitration involving a pipeline project includes Quanta subsidiary Mears’ claim of approximately $16.5 million and the customer’s counterclaim of approximately $79.5 million. No decision had been issued; an adverse outcome could produce a significant uninsured loss.
- Quanta recorded a $32.6 million partial withdrawal liability for a multi-employer pension plan. The plan’s estimates ranged from $32.8 million to $40.1 million depending on the withdrawal date and scope; Quanta disputed the plan’s position and the final liability was uncertain.
- Other exposures include $2.33 billion of performance bonds, $160.6 million of accrued insurance claims, and a $250.4 million maximum guaranteed residual value on certain equipment leases. The 2004 California fire claim was settled within available insurance during Q2.
- In July 2013, Quanta acquired two businesses for approximately $118 million cash, net of acquired cash, and 763,272 shares valued at approximately $18.7 million. Their results were not included in the quarter.
Most important facts for investors to verify
- Progress, negotiation outcome, billing, and cash collection for the approximately $252 million of change orders and claims, especially the concentrated electric-power project.
- Conversion and cancellation risk in the $7.51 billion backlog, including the portion under terminable master service agreements.
- Final exposure and timing for the Central States pension withdrawal liability and the outcome of the Mears arbitration.
- Whether operating cash generation can support planned capital spending, July acquisition payments, and ongoing investment while preserving liquidity.
- Customer receivable concentration and the performance and margin trends in major transmission and pipeline projects.