OREANDA-NEWS. Quanta Services, Inc. (NYSE: PWR) today announced results for the three and six months ended June 30, 2016. Revenues in the second quarter of 2016 were $1.79 billion and net income from continuing operations attributable to common stock was $16.6 million, or $0.11 per diluted share. Quanta's operating results for the three months ended June 30, 2016 were negatively impacted by a project loss of approximately $30.5 million ($18.6 million net of tax, or $0.12 per diluted share) that resulted from a claimed force majeure event and continued engineering and production issues on a power plant construction project in Alaska. Operating results were also impacted by lower than anticipated revenues and margins in the oil and gas segment, which were attributable to delayed project starts and, to a lesser extent, wildfires in Alberta, Canada, as well as certain other negative project conditions. In addition, Quanta's operating results were negatively impacted by a higher than anticipated tax rate as the percentage of earnings from jurisdictions with higher tax rates increased.

"The power plant project continues to distort the earnings of our core electric operations, which have performed well in the first six months of the year. Further, activity in the large electric transmission project market is building, as evidenced by the two new projects announced in this release, and we continue to see substantial bidding activity," said Duke Austin, president and chief executive officer of Quanta Services. "Subsequent to the second quarter, we have mobilized and are preparing to mobilize on a number of large diameter pipeline projects, which support our expectations for meaningful increases in consolidated revenues, margins and earnings in the second half of this year. We continue to have a positive multi-year view on the end markets we serve and believe we are well positioned to serve the expanding needs of our customers."

Revenues in the second quarter of 2015 were $1.87 billion and net income from continuing operations attributable to common stock was $32.0 million, or $0.15 per diluted share. Included in Quanta's operating results for the three months ended June 30, 2015 were project losses of $25.1 million ($16.2 million net of tax, or $0.08 per diluted share) related to the same power plant construction project in Alaska and an electric transmission project in Canada. Also included in Quanta's net income from continuing operations for the three months ended June 30, 2015 were combined charges of $7.2 million ($6.7 million net of tax, or $0.03 per diluted share) associated with certain tax law changes and acquisition-related items.

Adjusted diluted earnings per share from continuing operations (a non-GAAP measure) was $0.18 for the three months ended June 30, 2016 compared to $0.24 for the three months ended June 30, 2015.

RECENT HIGHLIGHTS

  • Selected for Large Electric Transmission & Distribution Project - In July 2016, Quanta was selected by a California-based utility for a large electric power transmission and distribution project located primarily in a national forest area in southern California. Led by CRUX Subsurface, Inc., a Quanta Services company, Quanta's scope of work includes the engineering, procurement and construction of the project, including rebuilding and replacing approximately 145 miles of 12 and 69 kilovolt underground and overhead electric power infrastructure. Engineering and related services for the project have begun, and completion is anticipated in late 2019.
  • Secured Contract for Midwest Transmission Line Project - In late June 2016, PAR Electrical Contractors (PAR), a Quanta Services company, began construction on a new 100-mile double-circuit 345 kilovolt transmission line for a Midwest utility in its service territory. PAR's scope of work includes access roads, foundations, steel pole erection, wire stringing and material management. The project is scheduled to be completed in the third quarter of 2018.

RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2016 AND 2015

Revenues in the six months ended June 30, 2016 were $3.51 billion compared to revenues of $3.73 billion in the six months ended June 30, 2015.   Net income from continuing operations attributable to common stock was $37.1 million, or $0.23 per diluted share, in the six months ended June 30, 2016 compared to net income from continuing operations attributable to common stock of $79.7 million, or $0.37 per diluted share, in the six months ended June 30, 2015.   Included in Quanta's operating results for the six months ended June 30, 2016 was a project loss of approximately $51.8 million ($31.6 million net of tax, or $0.20 per diluted share) that resulted from continued engineering and production issues and a claimed force majeure event on a power plant construction project in Alaska. Included in Quanta's operating results for the six months ended June 30, 2015 were project losses of $41.3 million ($27.4 million net of tax, or $0.13 per diluted share) related to the same power plant construction project in Alaska and an electric transmission project in Canada.

Adjusted diluted earnings per share from continuing operations (a non-GAAP measure) was $0.41 for the six months ended June 30, 2016 compared to $0.52 for the six months ended June 30, 2015.

The adjusted diluted earnings per share measures used in this earnings release are calculated as GAAP diluted earnings per share before acquisition and integration costs, amortization of intangible assets, non-cash compensation expense, and certain other items that affect comparability of results between periods. See the attached table for a reconciliation of adjusted diluted earnings per share (a non-GAAP measure) to GAAP diluted earnings per share from continuing operations for the three and six months ended June 30, 2016 and 2015.

Quanta completed three acquisitions during the first six months of 2016 and five acquisitions during the second half of 2015.  Therefore, the results for the three and six months ended June 30, 2016 included these acquisitions from the respective acquisition dates and are compared to the pre-acquisition historical results of Quanta for the three and six months ended June 30, 2015.

OUTLOOK

The long-term outlook for Quanta's business is positive. However, weather, regulatory, permitting, project timing, execution challenges and other factors have impacted the company's historical results, and may impact Quanta's future financial results. Therefore, Quanta's financial outlook for revenues, margins and earnings reflects management's effort to properly align these uncertainties with the backlog the company is executing on and the opportunities expected to materialize during 2016. The following forward-looking statements are based on current expectations, and actual results may differ materially.

Quanta expects a meaningful increase in revenues, margins and earnings during the second half of 2016, as compared to the first half of 2016, due to a significant increase in the number of larger pipeline projects anticipated to be in construction during the period. Our outlook includes estimates for project start dates, which as of the timing of this earnings release, we believe are probable based on customer communications. However, variances in these estimated start dates could lead to revenue and earnings results that differ materially from our current estimates. Furthermore, some of these projects are larger in contract value, and performance of any individual project that significantly exceeds or is less than our current estimates for such projects could materially impact our earnings results. Quanta's outlook does not assume any recovery of the project losses recognized to date on the power plant project in Alaska, even though the company is pursuing various remedies for recovery of such losses.

Quanta expects revenues for the full year 2016 to range between $7.75 billion and $8.0 billion and diluted earnings per share from continuing operations to be $1.20 to $1.35. Quanta expects adjusted diluted earnings per share from continuing operations (a non-GAAP measure) for the full year 2016 to be $1.52 to $1.67. See the attached table for a reconciliation of estimated adjusted diluted earnings per share from continuing operations to estimated GAAP diluted earnings per share from continuing operations for the full year 2016. 

ABOUT QUANTA SERVICES

Quanta Services is a leading specialized contracting services company, delivering infrastructure solutions for the electric power and oil and gas industries. Quanta's comprehensive services include designing, installing, repairing and maintaining energy infrastructure. With operations throughout the United States, Canada and Australia and in select other international markets, Quanta has the manpower, resources and expertise to safely complete projects that are local, regional, national or international in scope.

Quanta Services, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

For the Three and Six Months Ended June 30, 2016 and 2015

(In thousands, except per share information)

(Unaudited)
 
 

Three Months Ended

  

Six Months Ended
 

June 30,

  

June 30,
 

2016

  

2015

  

2016

  

2015

Revenues

$

1,792,430

    

$

1,872,340

    

$

3,506,167

    

$

3,733,726

  

Cost of services (including depreciation)

1,592,213

    

1,644,835

    

3,102,637

    

3,268,315

  

Gross profit

200,217

    

227,505

    

403,530

    

465,411

  

Selling, general and administrative expenses

156,607

    

149,923

    

315,131

    

295,386

  

Amortization of intangible assets

8,141

    

8,731

    

15,636

    

17,024

  

Operating income

35,469

    

68,851

    

72,763

    

153,001

  

Interest expense

(3,583)

    

(1,675)

    

(7,172)

    

(3,075)

  

Interest income

641

    

319

    

1,157

    

772

  

Equity in losses of unconsolidated affiliates

(378)

    

(314)

    

(559)

    

(314)

  

Other income (expense), net

(725)

    

(134)

    

(463)

    

(346)

  

Income from continuing operations before income taxes

31,424

    

67,047

    

65,726

    

150,038

  

Provision for income taxes

14,695

    

31,584

    

28,138

    

62,185

  

Net income from continuing operations

16,729

    

35,463

    

37,588

    

87,853

  

Net income from discontinued operations

—

    

14,102

    

—

    

19,897

  

Net income

16,729

    

49,565

    

37,588

    

107,750

  

Less: Net income attributable to non-controlling interests

167

    

3,456

    

530

    

8,157

  

Net income attributable to common stock

$

16,562

    

$

46,109

    

$

37,058

    

$

99,593

  
               

Amounts attributable to common stock:

              

Net income from continuing operations

$

16,562

    

$

32,007

    

$

37,058

    

$

79,696

  

Net income from discontinued operations

—

    

14,102

    

—

    

19,897

  

Net income attributable to common stock

$

16,562

    

$

46,109

    

$

37,058

    

$

99,593

  
               

Earnings per share attributable to common stock - basic and diluted:

              

Continuing operations

$

0.11

    

$

0.15

    

$

0.23

    

$

0.37

  

Discontinued operations

—

    

0.07

    

—

    

0.09

  

Net income attributable to common stock

$

0.11

    

$

0.22

    

$

0.23

    

$

0.46

  
               

Weighted average shares used in computing earnings per share:

              

Basic

156,128

    

213,047

    

159,577

    

214,257

  

Diluted

156,130

    

213,059

    

159,579

    

214,269

  

Quanta Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited)
 
 

June 30,

  

December 31,
 

2016

  

2015

ASSETS

      

CURRENT ASSETS:

      

Cash and cash equivalents

$

162,344

    

$

128,771

  

Accounts receivable, net

1,384,554

    

1,621,133

  

Costs and estimated earnings in excess of billings on uncompleted contracts

466,476

    

317,745

  

Inventories

74,976

    

75,285

  

Prepaid expenses and other current assets

156,037

    

134,585

  

   Total current assets

2,244,387

    

2,277,519

  

PROPERTY AND EQUIPMENT, net

1,160,870

    

1,101,959

  

OTHER ASSETS, net

93,033

    

76,333

  

OTHER INTANGIBLE ASSETS, net

203,256

    

205,074

  

GOODWILL

1,595,555

    

1,552,658

  

   Total assets

$

5,297,101

    

$

5,213,543

  
       

LIABILITIES AND EQUITY

      

CURRENT LIABILITIES:

      

Current maturities of long-term debt and short-term borrowings

$

5,603

    

$

7,067

  

Accounts payable and accrued expenses

811,521

    

782,134

  

Billings in excess of costs and estimated earnings on uncompleted contracts

388,314

    

399,230

  

Current liabilities of discontinued operations

2,651

    

15,313

  

   Total current liabilities

1,208,089

    

1,203,744

  

LONG-TERM DEBT AND NOTES PAYABLE, net of current maturities

401,119

    

475,364

  

DEFERRED INCOME TAXES AND OTHER NON-CURRENT LIABILITIES

484,719

    

446,620

  

   Total liabilities

2,093,927

    

2,125,728

  

TOTAL STOCKHOLDERS' EQUITY

3,200,323

    

3,085,494

  

NON-CONTROLLING INTERESTS

2,851

    

2,321

  

TOTAL EQUITY

3,203,174

    

3,087,815

  

   Total liabilities and equity

$

5,297,101

    

$

5,213,543

  

Quanta Services, Inc. and Subsidiaries

Supplemental Segment Data

For the Three and Six Months Ended June 30, 2016 and 2015

(Unaudited)
 

Segment Results

Quanta reports its results under two reportable segments: (1) Electric Power Infrastructure Services and (2) Oil and Gas Infrastructure Services, as set forth below (in thousands, except percentages).
 
 

Three Months Ended June 30,

  

Six Months Ended June 30,
 

2016

  

2015

  

2016

  

2015

Revenues:

                              

Electric Power Infrastructure Services

$

1,159,087

    

64.7

%

  

$

1,222,324

    

65.3

%

  

$

2,346,089

    

66.9

%

  

$

2,462,616

    

66.0

%

Oil and Gas Infrastructure Services

633,343

    

35.3

    

650,016

    

34.7

    

1,160,078

    

33.1

    

1,271,110

    

34.0

  

Consolidated revenues

$

1,792,430

    

100.0

%

  

$

1,872,340

    

100.0

%

  

$

3,506,167

    

100.0

%

  

$

3,733,726

    

100.0

%
                               

Operating income (loss):

                              

Electric Power Infrastructure Services (a)

$

75,934

    

6.6

%

  

$

88,027

    

7.2

%

  

$

163,258

    

7.0

%

  

$

197,019

    

8.0

%

Oil and Gas Infrastructure Services

11,899

    

1.9

    

35,981

    

5.5

    

17,740

    

1.5

    

60,128

    

4.7

  

Corporate and Non-Allocated Costs

(52,364)

    

N/A

  

(55,157)

    

N/A

  

(108,235)

    

N/A

  

(104,146)

    

N/A

Consolidated operating income

$

35,469

    

2.0

%

  

$

68,851

    

3.7

%

  

$

72,763

    

2.1

%

  

$

153,001

    

4.1

%
 

(a) Included in operating income for the Electric Power Infrastructure Services segment for the three and six months ended June 30, 2016 were the impacts of $30.5 million and $51.8 million of project losses related to a power plant construction project in Alaska. Included in operating income for the Electric Power Infrastructure Services segment for the three and six months ended June 30, 2015 were the impacts of $25.1 million and $41.3 million of project losses related to a power plant construction project in Alaska and an electric transmission project in Canada completed in the third quarter of 2015.

Backlog
Backlog is not a term recognized under United States generally accepted accounting principles (GAAP); however, it is a common measurement used in the industry. Quanta's methodology for determining backlog may not be comparable to the methodologies used by other companies.  Quanta's backlog represents the amount of consolidated revenue that it expects to realize from future work under construction contracts, long-term maintenance contracts and master service agreements. These estimates include revenues from the remaining portion of firm orders not yet completed and on which work has not yet begun, as well as revenues from change orders, renewal options, and funded and unfunded portions of government contracts to the extent that they are reasonably expected to occur. For purposes of calculating backlog, Quanta includes 100% of estimated revenues attributable to consolidated joint ventures and variable interest entities. The following table presents Quanta's total backlog by reportable segment as of June 30, 2016, December 31, 2015 and June 30, 2015, along with an estimate of the backlog amounts expected to be realized within 12 months of each balance sheet date (in millions):
 
 

Backlog as of
 

June 30, 2016

  

December 31, 2015

  

June 30, 2015
 

12 Month

  

Total

  

12 Month

  

Total

  

12 Month

  

Total
                       

Electric Power Infrastructure Services

$

3,270.2

    

$

6,347.2

    

$

3,307.9

    

$

6,312.9

    

$

3,217.1

    

$

6,280.2

  

Oil and Gas Infrastructure Services

2,437.6

    

3,408.5

    

1,900.8

    

3,074.0

    

1,705.7

    

2,870.7

  

Total

$

5,707.8

    

$

9,755.7

    

$

5,208.7

    

$

9,386.9

    

$

4,922.8

    

$

9,150.9

  

Quanta Services, Inc. and Subsidiaries

For the Three and Six Months Ended June 30, 2016 and 2015

Reconciliation of Non-GAAP Financial Measures

Adjusted Diluted Earnings Per Share from Continuing Operations 

 (In thousands, except per share information)

(Unaudited)
 

 
 
 
 

Three Months Ended

  

Six Months Ended
 

June 30,

  

June 30,
 

2016

  

2015

  

2016

  

2015

Reconciliation of adjusted net income from continuing operations attributable to common stock:

              

Net income from continuing operations attributable to common stock (GAAP as reported)

$

16,562

    

$

32,007

    

$

37,058

    

$

79,696

  

Adjustments:

              

    Impact of Alberta tax law change (a)

—

    

4,982

    

—

    

4,982

  

    Severance and restructuring charges (b)

—

    

—

    

6,352

    

—

  

    Acquisition and integration costs

830

    

2,203

    

2,083

    

3,682

  

    Income tax impact of adjustments (c)

(221)

    

(437)

    

(2,835)

    

(684)

  

Adjusted net income from continuing operations attributable to common stock before certain non-cash adjustments

17,171

    

38,755

    

42,658

    

87,676

  

Non-cash stock-based compensation

9,503

    

9,714

    

21,513

    

19,185

  

Amortization of intangible assets

8,141

    

8,731

    

15,636

    

17,024

  

Income tax impact of non-cash adjustments (c)

(6,371)

    

(6,630)

    

(13,616)

    

(13,011)

  

Adjusted net income from continuing operations attributable to common stock

$

28,444

    

$

50,570

    

$

66,191

    

$

110,874

  
               

Weighted average shares:

              

Weighted average shares outstanding for basic earnings per share

156,128

    

213,047

    

159,577

    

214,257

  

Effect of dilutive stock options

2

    

12

    

2

    

12

  

Weighted average shares outstanding for diluted and adjusted diluted earnings per share

156,130

    

213,059

    

159,579

    

214,269

  
                               

Diluted earnings per share from continuing operations and adjusted diluted earnings per share from continuing operations:

                              

Diluted earnings per share from continuing operations

$

0.11

    

$

0.15

    

$

0.23

    

$

0.37

  

Adjusted diluted earnings per share from continuing operations

$

0.18

    

$

0.24

    

$

0.41

    

$

0.52

  
 

(a) The amount for the three and six months ended June 30, 2015 reflects the elimination of the non-recurring impact of the cumulative revaluation of certain deferred tax liabilities pursuant to an Alberta provincial income tax law change that became effective as of June 1, 2015.

(b) The amount for the six months ended June 30, 2016 reflects the elimination of severance costs recognized in the first quarter of 2016 associated with the departure of Quanta's former president and chief executive officer and severance and restructuring costs associated with certain operations primarily within the Oil and Gas Infrastructure Services segment.

(c) The tax impact of adjustments that are subject to tax are determined using the incremental statutory tax rate of the jurisdictions to which each adjustment relates for the respective periods.

Quanta Services, Inc. and Subsidiaries

For the Year Ended December 31, 2016

Reconciliation of Non-GAAP Financial Measures

 Estimated Adjusted Diluted Earnings Per Share from Continuing Operations

(In thousands, except per share information)

(Unaudited)
 
 
 
   

Estimated Range
   

Full Year Ended

Estimated

  

December 31, 2016

Reconciliation of estimated adjusted net income from continuing operations attributable to common stock:

              

Net income from continuing operations attributable to common stock (as defined by GAAP)

  

$

188,000

    

$

211,500

  

  Severance and restructuring charges (a)

    

6,352

      

6,352

  

   Acquisition and integration costs

    

2,083

      

2,083

  

   Income tax impact of adjustments (b)

    

(2,835)

      

(2,835)

  

Adjusted net income from continuing operations attributable to common stock before certain non-cash adjustments

    

193,600

      

217,100

  

Non-cash stock-based compensation

    

41,000

      

41,000

  

Amortization of intangible assets

   

30,900

      

30,900

  

Income tax impact of non-cash adjustments (b)

    

(26,200)

      

(26,200)

  

Estimated adjusted net income from continuing operations attributable to common stock

   

239,300

    

$

262,800

  
                 

Weighted average shares:

                

Weighted average shares outstanding for basic earnings per share

    

157,083

      

157,083

  

Effect of dilutive stock options

    

5

      

5

  

Weighted average shares outstanding for diluted and adjusted diluted earnings per share

    

157,088

      

157,088

  
                 

Estimated diluted earnings per share from continuing operations and estimated adjusted diluted earnings per share from continuing operations:

                

Estimated diluted earnings per share from continuing operations

    

1.20

    

$

1.35

  

Estimated adjusted diluted earnings per share from continuing operations

    

1.52

    

$

1.67

  
 

(a) The amount for the six months ended June 30, 2016 reflects the elimination of severance costs recognized in the first quarter of 2016 associated with the departure of Quanta's former president and chief executive officer and severance and restructuring costs associated with certain operations primarily within the Oil and Gas Infrastructure Services segment.

(b) The tax impact of adjustments that are subject to tax are determined using the incremental statutory tax rate of the jurisdictions to which each adjustment relates for the respective periods.