Gross Margins Continued to Improve

HOUSTON, Nov. 4 /PRNewswire-FirstCall/ -- Quanta Services, Inc. PWR today announced results for the three and nine months ended September 30, 2009.

Revenues in the third quarter of 2009 were $780.8 million compared to revenues of $1.05 billion in the third quarter of 2008. For the third quarter of 2009, net income attributable to common stock was $63.4 million or $0.32 per diluted share, as compared to $51.9 million or $0.28 per diluted share in the third quarter of 2008. Included in net income attributable to common stock for the third quarter of 2009 is $22.4 million of income, or a benefit of $0.11 per diluted share, from the release of income tax contingencies due to the expiration of various statutes of limitations related to federal and state tax returns. Adjusted diluted earnings per share (a non-GAAP measure) was $0.25 for the third quarter of 2009 compared to $0.32 for the third quarter of 2008. Adjusted diluted earnings per share is GAAP diluted earnings per share before the impact of tax contingency releases and certain non-cash items such as amortization of intangible assets, non-cash interest expense and non-cash compensation expense, all net of tax. See the attached table for a reconciliation of non-GAAP measures to the reported GAAP measures.

"The slow economy continues to negatively affect the industries we serve and our revenues. However, our gross margins improved 130 basis points over the third quarter of 2008, a quarter during which we achieved $110 million more in higher margin emergency restoration service revenues. This gross margin improvement reflects our successful strategy of not pursuing lower margin work for the sake of revenues," said John R. Colson, chairman and CEO of Quanta Services. "We believe the most significant effects of the recession are behind us. While the first quarter of 2010 may be challenging, we expect a meaningful recovery in the second half of next year as spending by our customers returns."

Revenues for the first nine months of 2009 were $2.33 billion compared to $2.86 billion for the first nine months of 2008. For the first nine months of 2009, Quanta reported net income attributable to common stock of $118.2 million or $0.59 per diluted share, compared to $111.1 million or $0.63 per diluted share for the first nine months of last year. Included in net income attributable to common stock for the first nine months of 2009 is the previously discussed release of income tax contingencies in the third quarter of 2009. Adjusted diluted earnings per share was $0.59 for the first nine months of 2009 as compared to $0.76 for the first nine months of 2008. See the attached table for a reconciliation of non-GAAP measures to the reported GAAP measures.

See Note (a) to the attached Consolidated Statements of Operations for an explanation of 2008 amounts that have been retrospectively restated as a result of the adoption of new accounting pronouncements effective Jan. 1, 2009.

RECENT HIGHLIGHTS

• Completed Acquisition of Price Gregory Services, Incorporated - On Oct. 1, 2009, Quanta acquired, through a merger transaction, all of the outstanding common stock of Price Gregory Services, Incorporated. In connection with the merger, Quanta issued approximately 10.9 million shares of its common stock valued at $231.8 million and paid approximately $95.8 million in cash to the stockholders of Price Gregory. As the transaction was effective Oct. 1, 2009, the results of Price Gregory will be included in Quanta's consolidated financial statements beginning on such date. Price Gregory provides natural gas and oil transmission pipeline infrastructure services in North America, specializing in the construction of large diameter transmission pipelines. The merger significantly expands Quanta's existing natural gas and pipeline services and, when combined with Quanta's electric power services, positions Quanta as a leader in the North American energy transmission infrastructure market.
• Secured Contract for Transmission Services - American Transmission Co. (ATC) awarded a contract valued at approximately $100 million to Quanta Services as part of the utility's strategic plan to invest $2.5 billion in infrastructure improvements over the next ten years. Under the agreement, MJ Electric, a Quanta operating unit, will provide transmission line and substation work in the Upper Peninsula of Michigan and northern Wisconsin. The contract builds on Quanta's long-standing relationship with ATC, which includes the successful completion of more than 100 miles of transmission line in this region.
• Hosted 7th Annual Utility Perspectives Symposium - More than 150 industry leaders and policy makers from 33 states convened in Washington, D.C. to participate in Quanta's annual symposium, which is designed to address the various issues facing utilities and the energy market overall. Discussions regarding federal and state regulatory developments, renewable energy, smart grid and electric transmission infrastructure provided a dynamic forum during which attendees exchanged ideas and collaborated to strengthen the future of power delivery.
  

OUTLOOK

Quanta and its customers continue to operate in a challenging business environment with the economic downturn and weak capital markets. Therefore, management cannot predict the timing or extent of the impact that these conditions may have on demand for Quanta's services, particularly in the near term. The following forward-looking statements are based on current expectations and actual results may differ materially.

Quanta expects revenues for the fourth quarter of 2009 to range between $900 million and $950 million. This estimate includes a forecast of emergency restoration service revenues of $11 million versus approximately $47 million in emergency restoration service revenues being earned in the fourth quarter of 2008. It also includes an estimate of the results of Price Gregory for the full quarter. Diluted earnings per share for the fourth quarter of 2009 are estimated to be between $0.16 and $0.17. Quanta expects adjusted diluted earnings per share (a non-GAAP measure calculated on the same basis as the historical adjusted earnings per diluted share presented in this release) for the fourth quarter of 2009 to range from $0.26 to $0.27. Amortization of intangibles, non-cash interest expense and non-cash stock compensation expenses are forecasted to be approximately $34 million for the fourth quarter of 2009.

Quanta Services has scheduled a conference call for Nov. 4, 2009, at 9:30 a.m. Eastern time. To participate in the call, dial (480) 629-9644 at least ten minutes before the conference call begins and ask for the Quanta Services conference call. Investors, analysts and the general public will also have the opportunity to listen to the conference call over the Internet by visiting the company's Web site at www.quantaservices.com. To listen to the call live on the Web, please visit the Quanta Services Web site at least fifteen minutes early to register, download and install any necessary audio software. For those who cannot listen to the live webcast, an archive will be available shortly after the call on the company's Web site at www.quantaservices.com. A replay will also be available through Nov. 11, 2009, and may be accessed at (303) 590-3030 and using the pass code 4178458#. For more information, please contact Karen Roan at DRG&E by calling (713) 529-6600 or email kcroan@drg-e.com.

The non-GAAP measures in this press release and the attached table are provided to enable investors to evaluate performance excluding the effects of certain items that management believes impact the comparability of operating results between reporting periods. Reconciliations of other GAAP to non-GAAP measures not included in this press release and certain other items to be discussed during the conference call can be found on the company's Web site at www.quantaservices.com in the "Financial News" section.

Quanta Services is a leading specialized contracting services company, delivering infrastructure network solutions for the electric power, natural gas and pipeline and telecommunication industries. The company's comprehensive services include designing, installing, repairing and maintaining network infrastructure nationwide. Additionally, Quanta licenses point-to-point fiber optic telecommunications infrastructure in select markets and offers related design, procurement, construction and maintenance services. With operations throughout North America, Quanta has the manpower, resources and expertise to complete projects that are local, regional, national or international in scope.

Forward-Looking Statements

This press release (and oral statements regarding the subject matter of this release, including those made on the conference call and webcast announced herein) contains forward-looking statements intended to qualify for the "safe harbor" from liability established by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include, but are not limited to, projected revenues and earnings per share and other projections of financial and operating results and capital expenditures; growth or opportunities in particular markets; the impact of the Energy Policy Act of 2005, renewable energy initiatives, the recently enacted economic stimulus package and other potential legislative actions on future spending by customers; the potential benefits from acquisitions, including Price Gregory; the expected value of, and the scope, services, term and results of any related projects awarded under, agreements for services to be provided by Quanta; statements relating to the business plans or financial condition of utilities and our other customers; and Quanta's strategies and plans, as well as statements reflecting expectations, intentions, assumptions or beliefs about future events, and other statements that do not relate strictly to historical or current facts. Although Quanta's management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. These statements can be affected by inaccurate assumptions and by a variety of risks and uncertainties that are difficult to predict or beyond our control, including, among others, quarterly variations in operating results; continuing declines in economic and financial conditions, including volatility in the capital markets; trends and growth opportunities in relevant markets; delays, reductions in scope or cancellations of existing projects, including as a result of capital constraints that may impact our customers; dependence on fixed price contracts and the potential to incur losses with respect to these contracts; estimates relating to the use of percentage-of-completion accounting; the successful negotiation, execution, performance and completion of pending and existing contracts; the ability to generate internal growth; the effect of natural gas and oil prices on Quanta's operations and growth opportunities; the ability to effectively compete for new projects and market share; the failure of the Energy Policy Act of 2005, renewable energy initiatives, the recently enacted economic stimulus package or other potential legislative actions to result in increased demand for Quanta's services; cancellation provisions within contracts and the risk that contracts are not renewed or are replaced on less favorable terms; the inability of customers to pay for services; the failure to recover on payment claims against project owners or to obtain adequate compensation for customer-requested change orders; the failure to effectively integrate Price Gregory and its operations or to realize potential synergies, such as cross-selling opportunities, from the acquisition; the ability to attract skilled labor and retain key personnel and qualified employees; potential shortage of skilled employees; estimates and assumptions in determining financial results and backlog; the ability to realize backlog; the ability to successfully identify, complete and integrate acquisitions; the potential adverse impact resulting from uncertainty surrounding acquisitions, including the ability to retain key personnel from the acquired businesses and the potential increase in risks already existing in Quanta's operations; the adverse impact of goodwill or other intangible asset impairments; growth outpacing infrastructure; unexpected costs or liabilities that may arise from lawsuits or indemnity claims related to the services Quanta performs; liabilities for claims that are self-insured; risks associated with the implementation of an information technology solution; potential liabilities relating to occupational health and safety matters; the potential that participation in joint ventures exposes us to liability and/or harm to our reputation for failures of our partners; risks associated with operating in international markets; risks associated with our dependence on suppliers, subcontractors and equipment manufacturers; risks associated with Quanta's fiber optic licensing business, including regulatory changes and the potential inability to realize a return on capital investments; beliefs and assumptions about the collectability of receivables; the cost of borrowing, availability of credit, fluctuations in the price and volume of Quanta's common stock, debt covenant compliance, interest rate fluctuations and other factors affecting financing and investment activities; the ability to obtain performance bonds; the impact of a unionized workforce on operations and the ability to complete future acquisitions; the ability to continue to meet the requirements of the Sarbanes-Oxley Act of 2002; potential exposure to environmental liabilities; requirements relating to governmental regulation and changes thereto; rapid technological and structural changes that could reduce the demand for services; the ability to access sufficient funding to finance desired growth and operations; the potential conversion of Quanta's outstanding convertible subordinated notes; provisions of our corporate governing documents could make an acquisition of our company more difficult; and other risks detailed in Quanta's Annual Report on Form 10-K for the year ended December 31, 2008, Quanta's Quarterly Reports on Form 10-Q for each of the quarters in 2009, and any other documents that Quanta files with the Securities and Exchange Commission (SEC). Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied in any forward-looking statements. You are cautioned not to place undue reliance on these forward-looking statements, which are current only as of this date. Quanta does not undertake and expressly disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. For a discussion of these risks, uncertainties and assumptions, investors are urged to refer to Quanta's documents filed with the SEC that are available through the company's Web site at www.quantaservices.com or through the SEC's Electronic Data Gathering and Analysis Retrieval System (EDGAR) at www.sec.gov.

                               - Tables to follow -

Quanta Services, Inc. and Subsidiaries

Consolidated Statements of Operations

For the Three and Nine Months Ended September 30, 2009 and 2008

(In thousands, except per share information)

(Unaudited)

                             Three Months Ended          Nine Months Ended
                                September 30,               September 30,
                            -------------------         -------------------
                            2009           2008         2009           2008
                            ----           ----         ----           ----

                                      Restated(a)                 Restated(a)

    Revenues             $780,794     $1,053,355   $2,332,703     $2,858,679
    Cost of
     services
     (including
     depreciation)        633,166        867,789    1,930,162      2,390,546
                          -------        -------    ---------      ---------
       Gross profit       147,628        185,566      402,541        468,133
    Selling,
     general &
     administrative
     expenses              71,018         80,126      217,591        227,134
    Amortization
     of
     intangible
     assets                 5,448          8,998       15,260         29,464
                            -----          -----       ------         ------
       Operating
        income             71,162         96,442      169,690        211,535
    Interest
     expense               (2,816)        (9,837)      (8,437)       (29,153)
    Interest
     income                   338          2,022        2,047          8,105
    Loss on early
     extinguishment
     of debt                    -             (2)           -             (2)
    Other income
     (expense),
     net                      592            (74)         826            408
                              ---           ----          ---            ---
       Income before
        income taxes       69,276         88,551      164,126        190,893
    Provision for
     income taxes           5,320         36,614       45,036         79,817
                            -----         ------       ------         ------
       Net income          63,956         51,937      119,090        111,076
    Less: Net
     income
     attributable
     to noncontrolling        520              -          873              -
     interest                 ---            ---          ---            ---
       Net income
        attributable
        to common
        stock             $63,436        $51,937     $118,217       $111,076
                          =======        =======     ========       ========

    Earnings per
     share
     attributable
     to common
     stock:
       Basic
        earnings per
        share               $0.32          $0.30        $0.60          $0.65
                            =====          =====        =====          =====
       Diluted
        earnings per
        share               $0.32          $0.28        $0.59          $0.63
                            =====          =====        =====          =====

    Weighted
     average
     shares used
     in computing
     earnings per
     share:
       Basic              198,608        173,007      198,618        172,168
                          =======        =======      =======        =======
       Diluted            205,224        203,930      198,815        196,783
                          =======        =======      =======        =======

(a) Effective January 1, 2009, we adopted two new accounting pronouncements that each required retrospective application. One of these pronouncements was FASB Staff Position No. APB 14-1, "Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)" (FSP APB 14-1) (FASB Accounting Standards Codification (ASC) 470-20, Debt-Debt with Conversion and Other Options). FSP APB 14-1 (FASB ASC 470-20) requires us to bifurcate and separately value the debt and equity components of our convertible subordinated notes on our balance sheet. The recorded value of the equity component of our convertible notes is offset by the recognition of an adjustment to the carrying value of the convertible subordinated notes in the form of an original issuance discount which is amortized over the expected life of the convertible subordinated notes as a non-cash interest charge. As a result of the adoption of FSP APB 14-1 (FASB ASC 470-20), we recorded non-cash interest expense of $1.1 million and $3.1 million for the three and nine months ended September 30, 2009 and $4.6 million and $13.5 million for the three and nine months ended September 30, 2008. The additional non-cash interest expense in 2008 reduced our previously reported diluted earnings per share from $0.29 to $0.28 for the three months ended September 30, 2008 and from $0.64 to $0.63 for the nine months ended September 30, 2008. In addition, we adopted FASB Staff Position No. EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities" (FSP EITF 03-6-1) (FASB ASC 260, Earnings Per Share). Under FSP EITF 03-6-1 (FASB ASC 260), we are required to treat unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) as participating securities and for such awards to be included in the computation of both basic and diluted earnings per share. The adoption of FSP EITF 03-6-1 (FASB ASC 260) did not have a material impact on basic and diluted earnings per share in the three or nine months ended September 30, 2009 or 2008. As a result of retrospectively applying both of these FSPs, our consolidated balance sheet as of December 31, 2008 and consolidated statements of operations for the three and nine months ended September 30, 2008 have been retrospectively restated herein to reflect the impact of the adoption of these standards.

Quanta Services, Inc. and Subsidiaries

Calculation of Earnings Per Share

For the Three and Nine Months Ended September 30, 2009 and 2008

(In thousands, except per share information)

(Unaudited)

                                    Three Months Ended      Nine Months Ended
                                      September  30,         September  30,
                                     ---------------        ----------------
                                     2009       2008        2009        2008
                                     ----       ----        ----        ----
                                            Restated(1)            Restated(1)

    Income for diluted earnings per
     share:
       Net income attributable
        to common stock            $63,436    $51,937    $118,217    $111,076
       Effect of convertible
        notes under the
        "if-converted"
        method - interest expense
        addback, net of taxes        1,659      6,180           -      13,579
                                     -----      -----         ---      ------
       Net income attributable
        to common stock for
        diluted earnings
        per share                  $65,095    $58,117    $118,217    $124,655
                                   =======    =======    ========    ========

    Calculation of weighted average
     shares for diluted earnings
     per share:
       Weighted average shares
        outstanding for basic
        earnings per share         198,608    173,007     198,618     172,168
       Effect of dilutive stock
        options                        201        286         197         384
       Effect of convertible
        Subordinated notes under
        the "if-converted"
        method - weighted
        convertible shares
        issuable                     6,415     30,637           -      24,231
                                    ------      -----         ---      ------
       Weighted average shares
        outstanding for diluted
        earnings per share         205,224    203,930     198,815     196,783
                                   =======    =======     =======     =======

    Diluted earnings per share:
       Net income attributable
        to common stock              $0.32      $0.28       $0.59       $0.63
                                     =====      =====       =====       =====

    (1) See Note (a) to the Consolidated Statements of Operations.

Quanta Services, Inc. and Subsidiaries

Non-GAAP Financial Measures

For the Three and Nine Months Ended September 30, 2009 and 2008

(In thousands, except per share information)

(Unaudited) Reconciliation of Non-GAAP Financial Measures

                                  Three Months Ended     Nine Months Ended
                                     September 30,         September 30,
                                   -----------------     -----------------
    Adjusted diluted earnings
     per share:                    2009       2008        2009       2008
    --------------------           ----       ----        ----       ----
                                            Restated(1)           Restated(1)
    Net income attributable
     to common stock (GAAP
     as reported)                $63,436    $51,937    $118,217   $111,076
    Adjustments:
       Impact of tax
        contingency releases(2)  (22,446)         -     (22,446)         -
       Acquisition costs           1,313          -       1,313          -
                                   -----        ---       -----        ---
    Adjusted net income
     attributable to common
     stock before certain
     non-cash adjustments         42,303     51,937      97,084    111,076
       Non-cash stock-based
        compensation, net of
        tax                        3,031      2,466       8,927      7,565
       Non-cash
        interest expense, net
        of tax(1)                    711      3,075       2,092      9,010
       Amortization of
        intangible assets, net
        of tax                     3,323      5,489       9,309     17,973
                                   -----      -----       -----     ------
    Adjusted net income
     attributable to common
     stock after certain
     non-cash adjustments         49,368     62,967     117,412    145,624
    Effect of convertible
     subordinated notes
     under the
     "if-converted"                  949      3,105       2,846      9,350
     method - interest
     expense addback, net of
     tax                             ---      -----       -----      -----
    Adjusted net income
     attributable to common
     stock for adjusted
     diluted earnings            $50,317    $66,072    $120,258   $154,974
     per share                   =======    =======    ========   ========

    Calculation of weighted
     average shares for
     adjusted
     diluted earnings per
     share:
    Weighted average shares
     outstanding for basic
     earnings per share          198,608    173,007     198,618    172,168
    Effect of dilutive stock
     options                         201        286         197        384
    Effect of convertible
     subordinated notes
     under the "if
     converted"                    6,415     30,637       6,415     30,645
     method - weighted
     convertible shares
     issuable                      -----     ------       -----     ------
    Weighted average shares
     outstanding for
     adjusted diluted
     earnings per share          205,224    203,930     205,230    203,197
                                 =======    =======     =======    =======

    Adjusted diluted
     earnings per share            $0.25      $0.32       $0.59      $0.76
                                   =====      =====       =====      =====

    (1) See Note (a) to the Consolidated Statements of Operations.
    (2) Reflects the elimination of tax benefits primarily associated with
        the expiration of various federal and state tax statutes of
        limitations during the third quarter of 2009.

The non-GAAP measures in this press release are provided to enable investors to evaluate quarterly performance excluding the effects of items that management believes impact the comparability of operating results between periods. More particularly, in addition to the adjustments in the third quarter of 2009 relating to certain tax benefits described in Note (2) above and acquisition costs, (i) amortization of intangible assets is impacted by Quanta's acquisition activity, which can cause the amortization expense to vary period-to-period; (ii) non-cash interest expense results from the requirements of FSP APB 14-1 (FASB ASC 470-20) (see Note (a) to the Consolidated Statements of Operations) and varies from period-to-period depending on the amount of the convertible subordinated notes outstanding during the period, and (iii) non-cash compensation expense may vary due to acquisition activity and factors influencing the estimated fair value of performance-based awards.

Quanta Services, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In thousands)

(Unaudited) September 30, December 31, 2009 2008 ---- ---- Restated(1) ASSETS

    CURRENT ASSETS:
    Cash and cash equivalents                       $584,038    $437,901
    Accounts receivable, net                         663,277     795,251
    Costs and estimated earnings in excess of         62,353      54,379
     billings on uncompleted contracts
    Inventories                                       31,920      25,813
    Prepaid expenses and other current assets         61,372      72,063
                                                      ------      ------
            Total current assets                   1,402,960   1,385,407
    PROPERTY AND EQUIPMENT, net                      692,543     635,456
    OTHER ASSETS, net                                 31,647      33,479
    OTHER INTANGIBLE ASSETS, net                     131,053     140,717
    GOODWILL                                       1,375,902   1,363,100
                                                   ---------   ---------
            Total assets                          $3,634,105  $3,558,159
                                                  ==========  ==========


            LIABILITIES AND EQUITY

    CURRENT LIABILITIES:
    Current maturities of long-term debt and
     notes payable                                       $37      $1,155
    Accounts payable and accrued expenses            338,586     400,253
    Billings in excess of costs and estimated         51,465      50,390
     earnings on uncompleted contracts                ------      ------
            Total current liabilities                390,088     451,798
    CONVERTIBLE SUBORDINATED NOTES, NET              125,493     122,275
    DEFERRED INCOME TAXES AND OTHER                  294,782     301,712
    NON-CURRENT LIABILITIES                          -------     -------
            Total liabilities                        810,363     875,785
                                                     -------     -------
    TOTAL STOCKHOLDERS' EQUITY                     2,822,869   2,682,374
    NONCONTROLLING INTEREST                              873           -
                                                         ---         ---
    TOTAL EQUITY                                   2,823,742   2,682,374
                                                   ---------   ---------
            Total liabilities and equity          $3,634,105  $3,558,159
                                                  ==========  ==========

    (1) See Note (a) to the Consolidated Statements of Operations.

Contacts: James Haddox, CFO Kip Rupp / krupp@drg-e.com Reba Reid Ken Dennard / ksdennard@drg-e.com Quanta Services Inc. DRG&E 713-629-7600 713-529-6600

SOURCE Quanta Services, Inc.

Copyright 2009 PR Newswire

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