Quanta Services, Inc. Q2 2008 Earnings Call Transcript

Aug. 6.08 | About: Quanta Services (PWR)

Quanta Services, Inc. (NYSE:PWR)

Q2 FY08 Earnings Call

August 6, 2008, 09:30 AM ET

Executives

Kip Rupp - DRG&E

John R. Colson - President and CEO

Kenneth W. Trawick - President of Telecommunications and Cable Television Division

James H. Haddox - CFO

John R. Wilson - President and Electric Power and Gas Division

Analysts

Tahira Afzal - KeyBanc Capital Markets

Alex Rygiel - Friedman, Billings, Ramsey

Jamie Cook - Credit Suisse First Boston

Sanjay Shrestha - Lazard Capital Markets

John B. Rogers - D.A. Davidson

Jeffrey Beach - Stifel Nicolaus

Steve Gambuzza - Longbow Capital

Operator

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Quanta Services Second Quarter Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. [Operator Instructions]. This conference is being recorded today, Wednesday, August 06, 2008.

I'd now like to turn the conference over to Kip Rupp, with DRG&E. Please go ahead, sir.

Kip Rupp - DRG&E

Alright, thank you, Mitch and welcome everyone to Quanta Services' conference call to review 2008 second quarter results. Before I turn the call over to management, I have the normal housekeeping details to run through. If you'd like to be on the e-mail or fax distribution list to receive future press releases for Quanta, or if you had any technical difficulty this morning and did not receive your e-mail or fax, please call our offices at DRG&E, at 713-529-6600.

Also, if you'd like to listen to a replay of today's call, it will be available via webcast by going to Quanta's website, at quantaservices.com. In addition, there is a telephonic recorded instant replay that will be available for the next seven days, 24 hours a day that can be accessed as set forth in the press release, by dialing 303-590-3000, and using the pass code 11116519.

Please remember that information reported on this call speaks only as of today, August 06, 2008 and therefore you're advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call.

Also this conference will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, projected revenues, earnings per share, tax rates, capital expenditures, and other projections of financial and operating results and information, growth in particular markets, Quanta's strategies and plans, anticipated future projects, expected benefits from the merger with InfraSource Services, and any other statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts.

Management cautions that you should not place undue reliance on Quanta's forward-looking statements and Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call. Forward-looking statements involve certain risks, uncertainties, and assumptions that are difficult to predict or are beyond Quanta's control and actual results may differ materially from those expected or implied as forward-looking statements.

For additional information concerning some of the risks, uncertainties and assumptions that could affect our forward-looking statements, please refer to the company's annual report on Form 10-K for the year ended December 31, 2007, its quarterly report on Form 10-Q for the quarter ended, March 31, 2008 and its other documents filed with Securities and Exchange Commission which may be obtained through the SEC's website at www.SEC.gov. All forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements.

With that, I'd like to now turn the call over to Mr. John Colson, Quanta's Chairman and CEO. John?

John R. Colson - President and Chief Executive Officer

Good morning everyone and welcome to Quanta Services second quarter 2008 conference call. To start call this morning I will provide a general overview of the quarter, insight on developments in the industries we serve and perspectives on emerging opportunities.

My comments will be followed by a review of our telecommunications, cable television and wireless operations by Ken Trawick, President of those operations and a review of the financial results by James Haddox, our Chief Financial Officer. John Wilson, President of Quanta's Electric Power and Natural Gas Operations, is also present to answer questions. After our prepared remarks, we will open the call for questions.

The second quarter of 2008 continued a strong trend of revenue growth and margin expansion for Quanta. We continue to perform well in the industries we serve and are well positioned to leverage emerging [ph] opportunities. Revenues for the quarter were approximately $961 million compared to $552 million in the second quarter of 2007. The second quarter of 2008 revenues include constitution from operations added through the acquisition of InfraSource completed in August of 2007, as well as a couple of smaller acquisitions we have completed since the end of the second quarter 2007. Internal revenue growth, however, was strong at approximately 20% compared to the second quarter of 2007 pro forma to include these acquisitions at both periods.

We continue to be optimistic, although we're closely monitoring current and projected economic conditions. By design, Quanta's revenues base is diverse. Our service scope is broad and our operations are efficient, minimizing the impact of the fluctuating economy.

Oil prices increased significantly during the first two quarters of this year, our margins remain strong in most of the in the industries we serve. This is primarily attributable to growing demand for our services. However, multiyear strategic initiatives focused on increasing efficiencies strengthened our operations and our ability to strategically manage our business also contributed.

Our diversity resonates through our customer base and type of work. Our largest customer for the quarter made up only 4.8% of our revenues. Our top-10 customers for the quarter represented 33% of our total revenues, and our top-20 customers made up approximately 46% of revenues.

Breakdown of revenues by type of work also shows diversity. When divided by type of work, our 2008 second quarter revenues were approximately 55% from electric power services, 21% from natural gas services including pipeline integrity, 16.5% of revenues from telecommunications and cable services, 6% from ancillary services such as horizontal directional drilling and commercial and industrial wiring, and 1.5 from Dark Fiber leasing services.

Our employee count was 16,659 at June 30, 2008. This compares to 15,909 at the end of the first quarter and 11,713 at the same time last year. The increase in employees has occurred primarily on the electric power side of our business to support large transmission projects, natural gas work and renewable energy infrastructure construction. We've also grown our employee base to support the ongoing fiber-to-home initiatives which Ken will discuss shortly.

Looking now at our electric power and natural gas operations; revenues from electric power work totaled $532 million in the second quarter, compared to $314 million in the second quarter of last year. We continue to support various utilities to restore power to their service territories throughout the second quarter and into the third quarter. Our crews remain in Iowa following the June flooding of the Mississippi river. We are working to repair gas distribution lines and restore service back to the customers in those impacted areas.

Additionally, we deployed crews to South Texas last week to help with restoration efforts following Hurricane Dolly. The National Oceanic and Atmospheric Administration predicts a 60 to 70% chance of 12 to 16 maintenance storm including 69 hurricanes during the 2008 season. With the 2008 hurricane season almost one-third complete, our crews remain poised to support our customers' restoration efforts as needed.

As announced in this morning's press release, Allegheny Energy's, Trans-Allegheny Interstate Line or TrAIL 500,000-volt transmission line has received final approval from the Public Service Commission of West Virginia. Last Friday, the Commission issued an order approving TrAIL coast [ph] preferred route in West Virginia, as well as certain modifications south of Morgantown. The order follows FERC's July approval of the agreement for the TrAIL formula rate treatment which established its formula rate for the post-transmission line through West Virginia, Virginia, and Pennsylvania and other transmission-related projects.

Also, the hearing examiner in Virginia recommended that the State Corporation Commission authorize construction other Virginia segments of the line. He stated that the line is necessary to resolve overloads projected to occur on the transmission system as soon as 2011. TrAILCo is awaiting final approval in this route [ph] in Virginia and Pennsylvania. In 2007, Quanta was awarded the contract for the construction and transmission infrastructure for this 210 mile 500,000-volt project which is expected to be completed by June 2011.

Under $190 million contract with Lower Colorado River Authority, we've completed an initial project and are in the planning stages for additional projects expected to ramp up over the next several months. During the five-year period of the contract, Quanta will provide new construction, repair and maintenance services including right away preparation, environmental control, structural foundations, structure installation, conductor straining and energizing of new transmission lines as well as the reconstruction of existing transmission lines. As I will discuss shortly, LCRA is one of several utilities that has publicly stated its commitment to build the transmission system required by the new wind generation in Texas.

Under our $750 million with contract with Northeast Utilities, which is separate from the recently completed Middletown to Norwalk project, we are continuing in the pre-planning stages. The work under this contract is projected to begin in the fall of 2009.

There were significant developments related to delivery of power by the transmission grid in the second quarter. These developments occurred in several areas: transmission related to renewables, regulatory rulings and the initiation of projects to increase reliable power delivery. Most visible and publicized of these developments were related to the advancement of renewable generation, particularly wind power in Texas.

Three weeks ago Texas officials gave a nod to the nation's largest wind power project. Texas is already the leader in U.S. wind power generating approximately 5000 megawatts of wind power. The new plan would increase this capacity to 18,000 megawatts and enable that power to be moved for the plains of West Texas to the more populated energy-consuming urban areas in North and Central Texas. It is estimated that it will approximately $5 billion in transmission infrastructure to interconnect these wind farms into the grid.

Several longstanding Quanta customers joined together to form a joint venture called Electric Transmission of Texas. This joint venture of AEP and MidAmerican Energy Holdings has now joined with LCRA, Oncor and Sharyland Utilities to submit a proposal to the Texas PUC to build 2400 miles of new 345,000-volt transmission line. Lone Star Transmission also submitted a proposal to build us much as $2.4 billion of transmission line. It goes without saying that this is the significant opportunity for Quanta. We believe we're well positioned to leverage this opportunity and we'll be proud to be part of such a monumental task in our home state.

California as a state with one of the highest increases in energy consumption and one of the most aggressive renewable portfolio standards remains a hotspot for transmission projects. In recent weeks, California independent system operator or Cal-ISO outlined $6.5 billion in plans for major transmission projects. The plans encompass six transmission projects that would provide 9,550 megawatts of additional transmission capacity to meet the state's 33% renewable portfolio standards goals by 2030. Two projects critical to this goal and the previous goal of 20% by 2010 are the Tehachapi transmission project and the Sunrise [ph] power line.

As we mentioned in our last call, we have begun work on the Tehachapi transmission line. The contract encompasses installation of 75 miles of 500,000-volt transmission line which will be part of the $1.8 billion program to provide a high voltage transmission infrastructure necessary to interconnect and deliver renewable wind resources being developed in the Tehachapi wind resource area to California electricity customers.

As you know, the push for renewable power generation is not limited to Texas and California, it spans the country. At the end of the second quarter, we were in the midst of more than 30 projects related to renewable energy. These projects are related to wind, solar, and biofuel and fall into one or several categories; general construction, electrical construction systems, transmission and substation infrastructure.

We continue to see an increase in request for proposals as more renewable initiatives many of which have been in development for years become a reality. We expect our revenues from renewable projects for the year 2008 to be approximately $150 million. In addition to the emergence of the wind energy initiatives I have already discussed, we have seen an increase in opportunities related to solar energy.

In our last call, we discussed our installation of the solar electric generator plant at the Denver International Airport which was completed this month. We will participate in the ribbon cutting later this month, which will have added visibility because of the upcoming Democratic National Convention being held in Denver. Under the contract with WorldWater, Quanta provided site preparation and installation services for the more than 9000 panels required for the 2-megawatt ground-mounted solar system. The system spans more than 9 acres, the equivalent of seven football fields and is projected to provide 40% of the power supply required to run the airport, saving the airport about $13 million over the next 20 years. We believe the success of this project is lead to additional opportunities in the near future for Quanta. We are currently in negotiations with several independent solar projects in the Central and Southern United States.

I would like to close with an observation about the importance of our work. Since Quanta's inception, we've being stressing the need to upgrade the nation's power delivery system, and now it's a discussion in mainstream America, and it has become evident to most that transmission is not just about power; it's about livelihood. A recent study titled, The Cost of Not Building Transmission, conducted by Idaho National Laboratory under a grant from the Department of Energy, stated that transmission is the key to economic growth in the Pacific Northwest and Western Canada.

They further stated that the region will lose out on tens of billions of dollars of economic activity each year, if proposed inter state and trans-boundary electric transmission projects are not built. Realizations like this and the increased momentum in the industries we serve are reflected in our backlog. Twelve months backlog for the electric power and natural gas operations at 06/30/08 was approximately $1.9 billion. Total backlog for the electric power and natural gas operations at 06/30/08 was approximately $4.2 billion.

Quanta was founded with the vision to meet for infrastructure to deliver electric power, natural gas, telecommunications, and cable TV to the homes and businesses throughout our nation. Our employees have been making this a reality for decades and in many cases for generations. Now I will turn the call over the Ken Trawick who will discuss the recent developments in are telecommunications and cable operations Ken?

Kenneth W. Trawick - President of Telecommunications and Cable Television Division

Thank you, John and good morning everyone. I am very pleased to report continued strong results from Quanta's telecommunications and cable operations. In the second quarter of 2008, these operations had approximately 29% organic revenue growth compared to the second quarter of '07 on a pro forma basis including acquisitions in both periods.

Our ability to maintain margins while growing revenues is a result of our ongoing focus on quality of revenues. This growth is driven primarily by the services we provide to deploy fiber networks for the RBOCs, rural telcos and municipalities as well as increased activity in our wireless division.

The growth in our fiber installation services reflects the continuing commitment by the service providers and municipalities to deploy their fiber networks closer to the home and businesses that demand them. Our largest customers in this area are Verizon and AT&T both of them continued to announce expansion of their broadband services and communities throughout the nation. Our work is reflective of this and has been largely concentrated in California, Washington, Oregon, Pennsylvania, Florida, Texas, Delaware and New York.

In the second quarter, Verizon unveiled its plans to expand availability of its high-speed triple play wireless service. The network currently reaches 10 million homes and small businesses throughout Verizon's 16 state territories. The company plans to initially reach 18 million homes and businesses about 2010 and recently indicated that there is potential for that target number to increase during the same time period. This represents an $18 billion investment for Verizon. We think this provides some insight into Verizon's commitment and a continued demand that we expect will exist for our proven quality of installation services.

AT&T also recently stated their desired target to secure to more than 1 million customers with its numerous offering by year end and reiterated that they will deliver on this $4 billion commitment. The company's current subscriber toll is populated in 49000 with service available to 11 million homes in 53 markets. Now, I have stated this in previous calls but I want to stress that Quanta is committed to continued performance to support these customers in their network strategies to meet their deployment targets.

Our relationship continues to grow because of the quality work that our construction, installation crews provide, our commitment to safety and our knowledge of the industry. It is not just about trenching and placing fibers and conduits. In many cases such as work multiple dwelling units, we are providing a turnkey operation to these customers. From community communication to marketing to scheduling and equipment installation, Quanta's national footprint is providing a wide range of services to assist our customers in reaching their goal.

As fiber initiatives by the telcos reach full speed, additional competitive pressure is being placed on the cable operators to maintain and growth their subscriber base. Comcast recently announced that it plans to increase upstream bandwidth for its high-speed Internet customer at no additional cost. The company also recently announced a significant increase in subscribers for both high-speed Internet and their voice services. We believe this healthy competition is not only good for the end users but speaks positively to a continuing demand from the services provided by Quanta to these customers.

Our revenues form traditional outside plant maintenance services have been flat-to-down as a result of the downturn in the housing market. This is the start of the bidding season for a business as usual past [ph] master service agreement expiring this year and we anticipate renewal of that current agreement.

Total backlog for our telephone services excluding dark fiber remained flat since the first quarter. This is somewhat affected by the expiration of those MSAs at the end of this year. As I have mentioned previously, we expect the wireless industry has turned the corner and we expect continued strong revenue opportunities in this part of our business. This follows a period of mergers and acquisitions as well as questions about most viable path for new technology.

Today the market leaders are aggressively deploying new third generation or 3G technology to keep up with growing demand for cross-platform services, reliable service and strong connections. In the second quarter, we completed a major wireless project in the Midwest to support these efforts. Under the contract, Quanta provided complete services from site acquisition to construction and installation of electronics. The customer has commended our work and we expect the strong relationship to lead to future opportunities of similar scope.

Also in the second quarter, one of the interests in the wireless space, Verizon wireless acquired Alltel in an effort to expand the company's wireless network. With both Verizon and Alltel being long-term customers of Quanta for different services, we do not anticipate this acquisition to have a significant impact on our business. We expect the wireless industry to remain a strong opportunity for the foreseeable future. We have secured new contract with major players that will position us to respond to these needs, as they expand their networks and the capability of these networks.

Now looking to our Dark Fiber business; as we continue to leverage this competitive advantage, which was added to our services scope with the acquisition of InfraSource, we remain pleased with the strength of the existing business and the future growth opportunities. Revenues for the quarter were up 18.5% over the second quarter of '07 with improving margins.

As we previously mentioned, this is a vertically-integrated service which can leverage growth in key markets where secure high-speed networks are critical in areas such as education and healthcare. I recently provided some insight into measuring this business growth and the potential for evaluation of new contract sales. In 2007, new contract sales reached about a $147 million. New contract sales for 2008 have increased over 35% compared to the same period in 2007. These amounts represent additional revenues to be recognized over the contract period, beginning upon completion of construction of the networks. This area of our business is just entering the bidding season as the target vertical markets evaluate budgets for the coming year.

Our outlook for our combined telecom and cable operations remain strong. The first half of 2008 has delivered 42.5% pro forma revenue growth and strong margins, while we strengthened our market condition. We expect this strong performance to continue as we leverage our industry leadership, diverse services, and competitive differentiators to meet the evolving needs of our customers. While there is a potential that a prolonged recession could have a negative impact on our customers' spending patterns, statements from various service providers combined with our recent results, our near-term forecast and continued high demand for bundled services and half bandwidth applications, both data and video, wireless and fiber-based support our positive outlook and opportunities to grow revenues with strong margin in 2008.

Now, I will turn the call over to James Haddox for a review our financial results. James?

James H. Haddox - Chief Financial Officer

Thank you, Ken and good morning everyone. Today we announced revenues of $960.9 million for the second quarter compared to $552.2 million in the prior year second quarter resulting in an increase of $408.7 million or 74%.

Pro forma revenues in the second quarter of 2007 would have been $806.4 million. When I refer to pro forma information throughout my discussion, I am referring to data prepared on a combined company by just taking into account the acquisition of InfraSource and two smaller acquisitions, as if they occurred on January 1, 2007.

Pro forma revenue growth for 2Q '08 compared to 2Q '07 totaled approximately 19.6%. The as reported results of operations covered in my discussion for the second quarter of 2008, are compared to Quanta's pre-merger historical results for the second quarter of 2007.

This year's second quarter revenues included emergency restoration revenues of approximately $23 million compared to approximately $10 million being earned in pro forma revenues in 2Q '07. Excluding emergency restoration revenues from both periods, pro forma revenue growth would have been about 18% in the second quarter.

I want to remind you that we changed our methodology for combining... for compiling revenue by industry. We now discuss revenue backlog of work performed. For example, in the past when we performed telecom work for a utility, the associated revenues would have been classified as utility work. Under our current methodology, the revenues will be classified as telecom work.

Keep in mind, many times we maybe performing all types of works on one job as the same time, which requires us to estimate revenues and cost by type of work. However, we believe that the information by type of work is directionally accurate. On an as-reported basis, revenues from electric power during the second quarter of '08 increased by approximately $218 million or about 69% over the second quarter of 2007.

On a pro forma basis, electric power work increased by about $69 million or 15% quarter-over-quarter. Gas work increased approximately $136 million or 208% on an as-reported basis and about $83 million or 71% on a pro forma basis quarter-over-quarter. Telecom and cable work, excluding dark fiber leasing, increased approximately $66 million or 73% an as-reported basis and about $36 million or 29% on a pro forma basis quarter-over-quarter. Ancillary work decreased about $25 million or 31% on an as-reported basis and decreased about $33 million or 37% on a pro forma basis quarter-over-quarter.

Dark fiber revenues contributed $13.5 million in the quarter. Since this revenue was acquired as a part of the InfraSource acquisition, it did not contribute any as-reported revenues in the second quarter of 2007. On a pro forma basis dark fiber revenues grew 18.5%.

We generated gross margins of 16.5% for this quarter, compared to 15.4% during last year's second quarter, or an improvement of 110 basis points quarter-over-quarter. On a pro forma basis, last year's gross margin was 15.9%. The overall margin improvement quarter-over-quarter continued to being due to the improved pricing, the contribution of the higher margin Dark Fiber segment, and better fixed cost absorption as a result of higher revenues.

On an as-reported basis, G&A expenses were $76.3 million in the second quarter of 2008 compared to $47 million in the second quarter of 2007. The increase over 2Q '07 was due primarily to the acquisition of InfraSource, higher salaries and bonuses associated with increased personnel, salary increases and increased performance policies.

G&A expenses were down to 7.9% of revenues in 2Q '08 compared of 8.5% in 2Q '07 and compared to 8.4% in 1Q '08. Operating income before amortization or EBITDA on an as-reported was approximately $82.4 million or 8.6% revenues compared to $38.2 million or 6.9% for the second quarter of 2007 or an increased 170 basis points quarter-over-quarter. A table showing the calculation of EBITDA is set forth in the Financial News section of our website, at quantaservices.com.

We believe that EBITDA has become an important metric as amortization expense associated with InfraSource and other acquisitions has become a more material component of our income statement. Amortization of intangible assets increased from $692,000 in the second quarter 2007 to $9.9million in 2Q '08 due to acquisition of InfraSource and two other small acquisitions.

Interest income decreased approximately $3.6 million in the second quarter of '08 versus the second quarter of '07 as results of a low average cash balance and lower investment rates quarter-over-quarter. Our effective tax rate during was 41.8% compared to 42.3% during 2Q '07. Net income for the quarter was $40.5 million resulting in earnings per diluted share of $0.22 compared to net income from continuing operations of $21.8 million or $0.17 per diluted share in the second quarter of 2007.

Adding back non-cash amortization and intangibles and non-cash compensation expense, net of taxes for both periods resulted in adjusted income from continuing operations of $49.3 million or cash earnings per diluted share of $0.26 in the second quarter of 2008. This compares to adjusted income from continuing operations of $23.3 million or cash earnings per diluted share of $0.18 in the second quarter of 2007. A reconciliation of GAAP EPS to cash EPS is provided in the tables attached to our press release issued today.

Cash flow from operations totaled approximately $18 million for the quarter. Cash flow from operations less $53 million of capital expenditures net of proceeds from sales resulted in approximately $35 million of negative free cash flow for the quarter. Cash flow was negatively impacted by higher working capital requirements associated with sequential revenue growth between the first and second quarters of 2008 of $116 million and higher CapEx requirements during the first half of 2008.

The addition of IFS, specifically the Dark Fiber leasing operations, also impacted cash flow. Of the $53 million in net CapEx this quarter, $31.4 million related to Dark Fiber additions. Adjusted EBITDA was $106.4 million or 11.1% of revenues for the second quarter of 2008, representing an increase about 120% over adjusted EBITDA in 2007 second quarter. The calculation of this non-GAAP measure is detailed in a separate analysis in the Financial News section of our webcast at quantaservices.com.

For the first half of 2008, adjusted EBITDA was $182.6 million or 10% of revenues which is 92% higher than the adjusted EBITDA for the first half of 2007. Cash flow from operations for the first half of 2008 totaled $33 million. Subtracting net CapEx of $104 million yields $71 million in negative free cash flow year-to-date. We expect that free cash flow will be positive by a significant amount during the second half of the year, particularly during the fourth quarter as the fourth quarter generally produces lower revenues on a seasonal requiring less working capital.

Turning to backlog, three quarters ago we began expanding our disclosure related to backlog by adding a discussion of total backlog to our normal discussion of 12-month backlog. I will take a moment to provide you with the definition of total backlog. Total backlog includes the amount of revenues we expect to derive in the future from signed contracts, for project work and master service agreements. Backlog for project work includes the remaining revenues to be earned under lump sum projects and our estimate of the remaining revenues to be earned under time and equipment of our unit priced contracts. Backlog for master service agreements includes our estimate of future billings, based on our knowledge of our customers' spending patterns, under T&E and unit price arrangements through the end of the initial contracts periods and through the end of any renewal periods provided by the contract for which we reasonably expect the contract to continue.

Our total backlog award at June 30, 2008 was approximately $5.290 billion, which is approximately $121 million or 2.3% higher than total backlog at 03/31/08, just three months ago. Our current backlog award to be completed during the next 12 months is approximately $2.394 billion. This compares to $2.385 billion in backlog as of first quarter of 2008 or an increase of $9 million.

As Ken mentioned earlier, we have several telecom MSAs that expire at the end of this year. While we fully expect that these MSAs will be renewed, these renewals are not included in our backlog at June 30, of '08 and had negative impact on sequential 12-month backlog growth. We also finished the Northeast Utilities job five months ahead of schedule, while the Allegany project is just now ramping up.

Our day sales outstanding which we calculate by using the sum of current account receivable plus cost and earnings and excessive billings plus billings and excessive costs divided by average revenues per days in the second quarter were 81 days at June 30, 2008 versus 82 days at June 30, 2007. At quarter end, we have $304.8 million in cash on our balance sheet. We've approximately $ 174 million in letters of credit outstanding primarily to secure our insurance programs leaving us for approximately $301 million on available borrowing capacity under our credit facility.

Concerning our outlook for the future, our third quarter results can vary significantly due to the effects that emergency restoration work may have on the quarter. Our estimate revenues for the third quarter of '08 is from $1 billion to $1.04 billion. This estimate includes approximately $30 million of revenues from emergency restoration services plus the $18 million earned in 3Q '07.

Pro forma revenues for the third quarter 2007 were $832.4 million. Therefore our forecast represents approximately 22% in total revenue growth for the third quarter of 2008. Our estimate for 3Q '08 EPS based on revenues of between 1 billion and $1.04 billion is between $0.23 and $0.26 per diluted share on a GAAP basis. This compares to revenues of $655.9 million and diluted earnings share from continued efforts of $0.30 during the third quarter of '07. 3Q '07 EPS of $0.30 was positively impacted by approximately $0.11 related to the release of certain tax contingency.

Our GAAP forecast includes an estimate of $12.6 million for non-cash amortization of intangible assets and non-cash compensation expenses. Excluding these expenses, our cash EPS for the third quarter is expected to be $0.27 to $0.31 per diluted share. For additional guidance, we're currently projecting our tax rate for the third quarter to be approximately 41.8%. We expect our diluted share count to be about 202.5 million shares excluding the effect of any acquisitions. We expect CapEx for all of '08 to be approximately 180 to $190 million.

In summary, we're very pleased with our performance during the second quarter and first half of 2008. We look forward to continuing to meet our customers' growing needs for infrastructure services. This concludes our formal presentation. And now we'll open the line for Q and A. Mitch [ph]?

Question And Answer

Operator

Thank you sir, we will know begin the question and answer session. [Operator Instructions]. And our first question. Sir, one moment please. Okay, I do apologize. Our first question comes from Tahira Afzal with KeyBanc Capital Markets. Go ahead please.

Tahira Afzal - KeyBanc Capital Markets

Congratulations guys on a very good quarter and outlook.

John R. Colson - President and Chief Executive Officer

Thank you.

Tahira Afzal - KeyBanc Capital Markets

Just a couple of questions. It seems in terms of your third quarter guidance, the implied operating margins seem to be well above the 9.5... well closer to the 9.5% range which sort of enters into that 9 to 12% territory that you have always alluded to. And if you look... a year back from now and today, how do you feel about that 9 to 12% range.

James H. Haddox - Chief Financial Officer

I don't think we have changed our mind at all about the 9 to 12% operating range our core businesses, our electric power and telecom are typically closer in that range. The other... our challenges of course are the gas distribution business and our other businesses... the C&I business and ancillary businesses, getting those to acceptable to where they don't drag our core businesses down.

Tahira Afzal - KeyBanc Capital Markets

So given that we are sort of maybe six months closer versus where we were six months ago, would you say that 9 to 12% range is achievable over the next 12 months, i.e., should we see the continued momentum that's implied in third quarter to continue into '09 in terms of margins?

James H. Haddox - Chief Financial Officer

Yes we do, we think that's probably achievable.

Tahira Afzal - KeyBanc Capital Markets

Okay. Well that's pretty confident. That's a good thing.

James H. Haddox - Chief Financial Officer

Okay, I will try not to sound too confident.

Tahira Afzal - KeyBanc Capital Markets

No, no, I don't mind at all. In terms of... in terms of the timing and I am sure you've been getting a lot of questions on this, in terms of the timing of the CREZ award and any of the large other awards to the extent that you can comment, is there anything you can add?

James H. Haddox - Chief Financial Officer

John, you want to take that one?

John R. Colson - President and Chief Executive Officer

Well we are continuing, we've seen an increase in our bidding activity this year and we expect to see activity increase over the next several months due to things just like what you said but that's the CREZ zone and other initiatives around the country. So without saying too much about specifics kind of leave it at that. We are seeing increased activity and pretty robust market starting to develop.

Tahira Afzal - KeyBanc Capital Markets

Okay. And the 20% organic growth rate, you think that's sustainable as we look past 2008 or should we build in some things that will be more tempered?

John R. Colson - President and Chief Executive Officer

No I would not anticipate 40% growth. I suppose some quarters as we did in the second quarter and we are projecting for the third quarter we will have 20% but I think we will stick with our guidance of double-digit internal growth for the foreseeable future. But 20 is probably stronger than what is going to turn out to be for the entire year for sure.

Tahira Afzal - KeyBanc Capital Markets

Okay. And one last question in terms of your convertible, any change in your views on how you're going to approach that?

James H. Haddox - Chief Financial Officer

Tahira, this is James. No we haven't changed our views on that. We actually have not made the decision yet... the discussion has not been held with our board and there haven't been any decisions made on a formal basis here.

Tahira Afzal - KeyBanc Capital Markets

Okay, well thank you for the commentary and congratulations again.

John R. Colson - President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Alex Rygiel with FBR. Go ahead please

Alex Rygiel - Friedman, Billings, Ramsey

Morning gentleman and nice quarter.

John R. Colson - President and Chief Executive Officer

Thank you.

Alex Rygiel - Friedman, Billings, Ramsey

James, question for you as it relates to storm revenue in the quarter, I had in my note that last year pro forma storm revenue was $58 million not $10 million; am I noting correct or did you change?

James H. Haddox - Chief Financial Officer

No, I think your notes are correct.

Alex Rygiel - Friedman, Billings, Ramsey

Okay.

James H. Haddox - Chief Financial Officer

Didn't have as much of a storm... we didn't have much storm revenue in the third quarter of last year.

Alex Rygiel - Friedman, Billings, Ramsey

Fair enough. And as it relates to renewables in 2008 I believe you said that you planned on doing about $150 million revenue in renewables. How do you anticipate that number changing in 2009?

John R. Colson - President and Chief Executive Officer

Well it's difficult to say exactly; it depends on the success we have for projects but it was reasonably successful that should increase significantly from the $150 million level for 2008. There' just a lot of opportunity out there and we expected to be I mean double that or more.

Alex Rygiel - Friedman, Billings, Ramsey

Great thank you.

John R. Colson - President and Chief Executive Officer

Thank you.

Operator

Okay, thank you. And our next question comes from Jamie Cook with Credit Suisse. Go ahead please.

Jamie Cook - Credit Suisse First Boston

Hi, good morning. Just a follow up on the possible CREZ award; I think you talked about it being up a billing opportunity. Of that what's the addressable market for Quanta and how... and John how do you think that project will be bid out I guess.

John R. Wilson - President and Electric Power and Gas Division

Jamie this is John Wilson. We're probably looking at somewhere of total line mileage [ph] build on the CREZ zone. It's somewhere around 2500 to 3000 miles of line. We believe that the investor owned utilities in the region of where they operate will build and we will bid out their portion of the lines and the general service territory. We also believe that there could be some other participants in that market... some merchant guys when developers building their own private transmission. Out of the $5 billion we've always said that the construction piece of the line, the pieces that we actually do that could be always high as maybe 50% of that number. So it relates to a very large significant piece of business that going to have to be built in and say 2 to 3, 4 years because of all of the renewable rent that it going in West Texas. So as naturally we are pretty exited about what's out there because it's going to have to be built out. We are going to have turbid standing and no place to put your power.

Jamie Cook - Credit Suisse First Boston

And can you just talk about... I mean... I think if we looked in 2007 year, we said, yes, the renewable efforts were sort of ramping up but you guys see clearly just because the margins on that business wasn't as high as your traditional electric power was below where you guys sort of wanted because of some of the smaller contractors. What are you sort of seeing on the pricing environment on the renewable projects you are bidding on and how should we think about that impacting your 9 to 12% margin target?

John R. Colson - President and Chief Executive Officer

Let me clarify that the portion of the renewables ticker [ph] to the wind; the installation of the wind turbines is the part that has been fairly low margin in the past. The transmission lines, the substations and the gathering lines have been in line with our traditional margins. So what we are seeing is that the margins on the installation of the turbines, in other words the complete project have been rising as there's been more demand for those services. They are not still in line with our expected margins but they are better than they have been in the past. On the solar side, margins there vary depending on the size of project and where they are located. Some of those are within our target margin range and some are not.

Jamie Cook - Credit Suisse First Boston

All right. And then last can you just give us a feel for how much... you talked about on the margin you are doing... the margins you are increasing because of the increased prizing but also the contribution from the dark fiber business. Can you just give a little color how much was dark fiber versus prizing initiatives.

Our dark fiber in the as-reported numbers was somewhat around half of margin increase. On a pro forma basis it made up very little of the margin increase. Those margins in dark fiber increased maybe 100 basis points quarter-over-quarter on a pro forma basis.

Jamie Cook - Credit Suisse First Boston

Great. Thanks, I will get back in queue.

John R. Colson - President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question come from Sanjay Shrestha with Lazard Capital Markets, go ahead please.

Sanjay Shrestha - Lazard Capital Markets

Great, thank you, once again a great quarter on Alfacare guys [ph]. A quick question... John I think you mentioned that you guys are sort of also watching the overall macro lump; I mean economic environment closely because you guys are a late cycle industry and 12 months slowdown doesn't impact you. At the same time you got this massive wave of spending both on the utility and the telecom side coming to you guys. So from the actual capacity and planning standpoint how are you guys sort of managing that and how are you sort of planning for that?

John R. Colson - President and Chief Executive Officer

Well as you know we've started planning for the... this type of growth several years ago. So we started the increasing the participation in our training programs back then. We had a significant increase in our bowies [ph] from the first quarter to the second quarter and year-over-year as well. So we are building in capacity and what we is going to be necessary going forward.

Sanjay Shrestha - Lazard Capital Markets

Right.

John R. Colson - President and Chief Executive Officer

Many of these projects as we all know will be delayed. So I think that bodes well for these projects getting done because there's probably not enough capacity of all these projects were to be completed in the timeframe that they are talking about... probably very difficult to do, but we all know that delays are just part of the landscape for these industries and transmission lines are controversial things. So there will be some delay involved in them. We work often that we are going to have the resources we need to meet our customer's demands as they are required.

Sanjay Shrestha - Lazard Capital Markets

Got it. So that was kind of where I was trying to go with it because that plays perfectly in your benefit because you guys are the largest player in the industry, so does that then mean the pricing even goes up higher for you guys given this dynamic and, two, then maybe we are at the point where we can even say, the operating margin can even get back to the prior levels where it was higher than 12%.

John R. Colson - President and Chief Executive Officer

Right. The ideal environment is one where we have capacity in the industry as a whole is shorter capacity and that allows us to increase margins. And we do things come... it will come a time where it will be more important to have the timely completion of a project than a few percentage points of margins. So we think that margins will continue to increase as demand continues to increase.

Sanjay Shrestha - Lazard Capital Markets

Okay, terrific, that's great. Thank a lot guys.

James H. Haddox - Chief Financial Officer

Thank you.

Operator

Okay, thank you. And our next question comes from John Rogers with D.A. Davison. Go ahead please.

John B. Rogers - D.A. Davidson

Hi.

John R. Colson - President and Chief Executive Officer

Good morning.

John B. Rogers - D.A. Davidson

Good morning. Very nice quarter [ph]. First of all in term of your third quarter guidance and I apologize you said this but what are your assumptions fro emergency revenue in there... emergency work?

John R. Colson - President and Chief Executive Officer

We announced that we are going to do about $30 million; that's what in our forecast.

John B. Rogers - D.A. Davidson

Okay. And what was it last year?

John R. Colson - President and Chief Executive Officer

$18 million.

John B. Rogers - D.A. Davidson

$18 million?

John R. Colson - President and Chief Executive Officer

Yes.

James H. Haddox - Chief Financial Officer

$18 million.

John B. Rogers - D.A. Davidson

Okay, thank you. And then secondly do you have a good or even a rough sense of what your market share is in terms of capacity for the distribution and the transmission... electrical transmission work?

John R. Colson - President and Chief Executive Officer

Well I think the best judge of our market share relates back to our filings last year... the Hart-Scott-Rodino filings where we did extensive study and it showed that we had less than 15% of any market that we participated in.

James H. Haddox - Chief Financial Officer

John, I just want to clarify that storm number there I just gave you. That $18 million number is a pro forma number.

John B. Rogers - D.A. Davidson

Okay.

James H. Haddox - Chief Financial Officer

Report... on an as-reported basis it was 13 million.

John B. Rogers - D.A. Davidson

13, great. And just on the market share, do you think that... I mean is that changing?

John R. Colson - President and Chief Executive Officer

I think...

John B. Rogers - D.A. Davidson

Have you seen consolidation among some of the private companies or alternately are you growing faster... you think you are adding capacity proportionally faster than your peers?

John R. Colson - President and Chief Executive Officer

Yes, I think that we are gaining market share. As you say that we are the largest and we are probably adding resources faster than our competitors and there's a lot of thing that we bring to the market besides just capacity that bodes well for our market share growth as well; things like our energized services and storm response, our reputation for timely completion, quality products. There are a lot of things that we bring to the market besides just add additional capacity.

John B. Rogers - D.A. Davidson

And I assume that's especially true on the larger projects.

John R. Colson - President and Chief Executive Officer

That's true, absolutely.

John B. Rogers - D.A. Davidson

And are you seeing more or less competition on those larger projects or any of your competitors that are small ones trying to form JV as to compete for this work or... ?

John R. Colson - President and Chief Executive Officer

We expect that they will. We haven't seen anything yet that is much different than what we expected here, what you've seen in the past. I don't know of any new competitors necessarily but we expect there will be some formation of joint ventures and so forth by smaller contractors to try to participate in the larger projects.

John B. Rogers - D.A. Davidson

One larger contractor acting as a general as well and trying to do that?

John R. Colson - President and Chief Executive Officer

That happens sometimes usually when margins are higher than they are right now in that market when the margins are approaching 30% then you start seeing some of the E&C contractors trying to enter our business and be it general and subcontractor work out.

John B. Rogers - D.A. Davidson

Okay, but you haven't seen anything yet?

John R. Colson - President and Chief Executive Officer

Not really, no.

John B. Rogers - D.A. Davidson

Great, thank you.

John R. Colson - President and Chief Executive Officer

Okay.

Operator

Okay, thank you. And our next question comes from Jeff Beach with Stifel Nicolaus. Go ahead please.

Jeffrey Beach - Stifel Nicolaus

Yes good morning and again congratulations on a great quarter.

John R. Colson - President and Chief Executive Officer

Thank you Jeff.

Jeffrey Beach - Stifel Nicolaus

Last quarter you talked about the progress you had made in your gas services in shifting in the higher margin business. Can you talk about where you are today this quarter compared with a year ago, the industry conditions and kind of look out where you think you will be a year from now and that shift to higher margin business?

John R. Colson - President and Chief Executive Officer

Yes sir. I think we've been fairly successful. We are pretty happy with... particularly with the growth on that side of the business margins continue to improve there. We've had really nice performance and we expect that to continue for probably the next several quarters. There comes a point where we'd probably max those out and then probably max out below our electric power and telecommunications margins but they are doing very well and I am very happy and very pleased with where we are out with it.

Jeffrey Beach - Stifel Nicolaus

All right. And back on the renewable energy at the last quarter you had said you are hopeful you would... you might receive a sizeable award and I think a wind energy project in the North East and I've seen from other companies a foray of awards trying to get a lot of work done by the end of the year. You'd talked last quarter about 150 million, I think, in revenues and you are still talking about that. So are you participating in this foray of activity trying to beat the deadline for the tax credits and... until some decision is made?

John R. Colson - President and Chief Executive Officer

Yes we are. I think we stated that there is nearly 30 or over 30... around 30 projects that we're working on related to renewables right now. Many of these projects are big projects but they are not $100 million larger projects which is kind of the threshold for an announcement by us Jeff.

Jeffrey Beach - Stifel Nicolaus

And again are you seeing a steady... are you seeing an improvement in general in the profit margins across every... seeing in general across the whole slot of opportunities you have, are you seeing margins continuing to go up in the renewable area?

John R. Colson - President and Chief Executive Officer

Yes, we are. They are not going up as fast as we would like to see them obviously, but yes we are seeing margins go up and that's simply supply and demand.

Jeffrey Beach - Stifel Nicolaus

All right, thank you.

Operator

Okay thank you. And our next question comes from Steve Gambuzza with Longbow Capital. Go ahead please.

Steve Gambuzza - Longbow Capital

Good morning.

John R. Colson - President and Chief Executive Officer

Good morning

Steve Gambuzza - Longbow Capital

Can you talk about what the impact of the telecom MSAs were on the backlog number for the quarter. You mentioned that that you didn't include... you expect them to be resigned but you didn't include any amount in backlog, can you just give us some kind of order of magnitude of what the sequential decrease from that was?

John R. Colson - President and Chief Executive Officer

We have several AT&T, Verizon particularly most noteworthy that those contracts are just coming up on their normal expiration dates at the end of the year and we expect those to be renewed and I would guesstimate the revenues... they vary and we don't... and we put in backlog as we get close to the affected quarter what we expect the revenues to be. And so we... I would guess it to be... have an impact of $75 million to $100 million per quarter.

Steve Gambuzza - Longbow Capital

Per quarter?

John R. Colson - President and Chief Executive Officer

That's correct.

Steve Gambuzza - Longbow Capital

So kind of... okay. Okay, thanks very much, I appreciate it.

Operator

Okay. Thank you. And I would like to... follow-up question from Tahira Afzal. Go ahead please.

Tahira Afzal - KeyBanc Capital Markets

Hi gentleman, just one follow-up question. We have been hearing a lot on the electric distribution side in term of lines being cut and then essentially being reconnected and this in... as I think on account of people not paying their bills. I was wondering if you would see any impact from that and does that even impact your businesses such that... just the lines connect and reconnect and doesn't really impact things?

John R. Colson - President and Chief Executive Officer

Yes, we are not seeing too much impact from that. There are two things that impact us... are impacting the distribution business right now. Our housing starts which of course are down and also that the utilities are focusing on their major transmission projects and maybe taking their eye off of their distribution projects at this time.

Tahira Afzal - KeyBanc Capital Markets

So you think the distribution spending allocation might be a little soft in advance and that's being reallocated to some extent?

John R. Colson - President and Chief Executive Officer

I believe that's the case... I think that's what we're seeing.

Tahira Afzal - KeyBanc Capital Markets

Okay. Thank you very much.

John R. Colson - President and Chief Executive Officer

Thank you.

Operator

And thank you. And ladies and gentleman that does conclude our question and answer session. I'd now like to turn the conference back over to John Colson for closing remarks.

John R. Colson - President and Chief Executive Officer

Thank you. I'd like to thank all of you again for your participation in our second quarter conference call. We appreciate you questions and ongoing interest in Quanta. Good bye.

Operator

Ladies and gentleman, this concludes the Quanta Services second quarter earnings conference call. Thank you for participation and you may now disconnect.

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