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Edited Transcript of PWR earnings conference call or presentation 1-Aug-19 1:00pm GMT

Q2 2019 Quanta Services Inc Earnings Call

HOUSTON Aug 23, 2019 (Thomson StreetEvents) -- Edited Transcript of Quanta Services Inc earnings conference call or presentation Thursday, August 1, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Derrick A. Jensen

Quanta Services, Inc. - CFO

* Earl C. Austin

Quanta Services, Inc. - President, CEO, COO & Director

* Kip A. Rupp

Quanta Services, Inc. - VP of IR

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Conference Call Participants

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* Adam Robert Thalhimer

Thompson, Davis & Company, Inc., Research Division - Director of Research

* Alexander John Rygiel

B. Riley FBR, Inc., Research Division - Analyst

* Andrew Alec Kaplowitz

Citigroup Inc, Research Division - MD and U.S. Industrial Sector Head

* Brent Edward Thielman

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Chad Dillard

Deutsche Bank AG, Research Division - Research Associate

* Jamie Lyn Cook

Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst

* Justin P. Hauke

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate

* Noelle Christine Dilts

Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst

* Steven Fisher

UBS Investment Bank, Research Division - Executive Director and Senior Analyst

* Tahira Afzal

KeyBanc Capital Markets Inc., Research Division - MD, Associate Director of Equity Research, and Equity Research Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Quanta Services Second Quarter 2019 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Kip Rupp, VP, Investor Relations.

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Kip A. Rupp, Quanta Services, Inc. - VP of IR [2]

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Thank you, and welcome, everyone, to the Quanta Services Second Quarter 2019 Earnings Conference Call. This morning, we issued a press release announcing our second quarter results, which can be found in the Investors & Media section of our website at quantaservices.com, along with a summary of our 2019 outlook and commentary that we will discuss this morning.

Please remember that information reported on this call speaks only as of today, August 1, 2019, and therefore, you're advised that any time-sensitive information may no longer be accurate as of any replay of this call.

This call 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 include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance that do not solely relate to historical or current facts.

Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or beyond Quanta's control, and actual results may differ materially from those expressed or implied. For additional information concerning some of these risks, uncertainties and assumptions, please refer to the cautionary language included in today's press release, along with the company's 2018 annual report on Form 10-K and its other documents filed with the Securities and Exchange Commission, which are available on Quanta's or the SEC's website. You should not place undue reliance on forward-looking statements, and Quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call.

Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA and free cash flow. Reconciliations of these measures to their most directly comparable GAAP financial measures are included in our earnings release.

Lastly, if you would like to be notified when Quanta publishes news releases and other information, please sign up for e-mail alerts through the Investors & Media section of quantaservices.com. We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on social media channels listed on our website.

With that, I would now like to turn the call over to Mr. Duke Austin, Quanta's President and CEO. Duke?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [3]

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Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Second Quarter 2019 Earnings Conference Call. On the call, I will provide operational and strategic commentary before turning it over to Derrick Jensen, Quanta's Chief Financial Officer, who will provide a detailed review of our second quarter results. Following Derrick's comments, we welcome your questions.

This morning, we reported record consolidated second quarter revenues, as well as our highest ever quarterly Electric Power segment revenue. Our record quarter backlog of $12.8 billion bodes well for our expectations this year and opportunity for multiyear growth, and continues to be driven primarily by incremental growth of programmatic spending. It is noteworthy that we achieved $11 billion in backlog for the first time at the end of 2017. And in only 1.5 years, we have grown our backlog to more than 14% to the record level we reported this morning.

We believe there is opportunity to add significant new backlog over the coming quarters from several large electric transmission and pipeline projects. Also, we see multiyear, multibillion-dollar fire hardening programs coming for 2020 and 2021 that are not reflected in our backlog due to the current difficulty of quantifying the specifics of scope and timing.

Before I provide my operational and strategic commentary, I wanted to touch on the charge we took in the second quarter. On our last earnings conference call and in subsequent investor conference webcasts, we discussed a project dispute with an agency of the Peruvian government regarding certain fiber-optic networks that a Quanta subsidiary in Peru had been constructing for them under our previously awarded concession arrangement. As discussed in our press release this morning, we believe the contracts for the project were wrongfully terminated, that performance and payment bonds totaling $112 million were wrongfully called and that the Peruvian governmental agency is not entitled to the alleged amount of liquidated damages.

As of the date of the contract termination and prior to calling the bonds, Quanta's subsidiary had incurred approximately $157 million of construction costs for the projects and had received approximately $100 million in payments. That means after returning the project to the customer, as required by the contracts and which is expected to occur before year-end, the agency of the Peruvian government will possess the as-completed fiber build and more money from the bond proceeds than it has paid Quanta under the project contracts. We believe that represents an abuse of power and unfair treatment by the agency of the Peruvian government, and that their actions have provided them with unjust enrichment.

Our Peruvian subsidiary has filed for arbitration and intends to vigorously pursue its claims related to these matters, as well as claims relating to payment for completed work and lost income for future operation and maintenance of the assets.

Quanta's primary end markets and operations are performing well and have strong, multiyear growth opportunities. While we originally entered select Latin American markets based on attractive opportunities for Quanta to support our North American customers, those opportunities must also be favorable to margins with an attractive risk/reward profile. To that end, we are evaluating our strategy and relevant opportunities for our existing Latin American operations. Furthermore, this incident distracts from another strong quarter in which we had continued robust base business activity in our core markets and otherwise year-over-year margin improvements in all our primary service offerings.

Turning to our broader operating results, our Electric Power operations have performed well during the first half of this year from both the revenue and margin perspectives. We expect our electric operations revenues to increase during the second half of this year, while also maintaining double-digit margins, driven primarily by a broad-based business strength through supporting the growing CapEx and OpEx programs of our utility customers.

Several devastating hurricanes and other severe weather events over the last 7 years in the United States have spurred large, multiyear and multibillion-dollar storm-hardening initiatives. However, there is more than a decade of significant additional investment required. For example, the State of Florida recently signed into legislation that requires utilities to create 10-year hardening plans that will call for more undergrounding and steel and concrete structures. As a result, one of our customers has said that it believes that the undergrounding of distribution laterals represents a $25 billion to $35 billion incremental capital investment opportunity over the next 20 to 30 years. In the near term, this utility expects to invest between $11.5 billion and $13.5 billion in transmission and distribution projects through 2022, which includes $3 billion to $4 billion for storm hardening.

Using storm-hardening initiatives as a proxy, we believe the fire hardening initiatives in the Western United States are just the beginning. It could remain active for 2 decades or more and could require tens of billions of dollars of investment.

Earlier this year, the California Public Utility Commission required the 3 major California utilities to file their 2019 wildfire safety plans, which detailed approximately $4 billion of incremental strategic investments in the near term, aimed at reducing fire risk and preventing future wildfires in the state. We are currently working with multiple utilities to that end and believe these large multiyear fire-hardening programs are still in the early stages.

We are also seeing larger electric transmission projects being planned due to load growth in certain areas of the United States, driven by data centers, LNG export, industrial facilities and hydrocarbon production areas, such as the Permian Basin. We believe the award of some of these larger projects is imminent. Additionally, we expect to begin construction on the East-West Tie Line Project and our recently secured medium-sized electric transmission project, both in Canada later this year.

Our U.S. communication operations continue to show improvements over 2018. We have slightly adjusted our full year 2019 revenue expectation to around $400 million from $500 million, primarily due to the elimination of revenues associated with the canceled Peruvian fiber project and permitting and engineering delays on some domestic telecom projects. However, as to the charge, we still expect to achieve mid-single-digit operating income margins on a full year basis this year, with upper single digit margins as we exit the year.

Our customers are pushing fiber closer to their customer, fiber backhaul densification continues, additional fiber is being deployed for 5G wireless and broadband network expansion initiatives in rural markets are ongoing. We also continue to believe Quanta is uniquely positioned to provide solutions to both wireless carriers and utility companies as 5G infrastructure is increasingly deployed on the electric distribution system, which will require significant electric lineman resources.

Quanta plays a critical role in facilitating the economy, technologies and the lower carbon footprint of the future. Our economy continues to move towards lower emissions for power generation through greater renewables adoption. This shift requires new transmission, tie lines and substations to be built and the existing grid must be upgraded and modified to accommodate greater levels of intermittent power.

Implementation and widespread adoption of new technologies and services, such as 5G, autonomous vehicles and electric vehicles, all require power and new infrastructure, and the power grid of today is not designed to meet those needs. We are in active discussions with key players in these arenas, helping them to understand the infrastructure that is required to support these technologies and how Quanta can help them execute their go-to-market strategies. We continue to believe the role of Quanta will increasingly play in the economy and technologies of the future. It is not well understood by many of our stakeholders.

Our Pipeline and Industrial segment has increased revenue more than 16% and more than doubled operating income in the first half of this year as compared to the first half of last year. As we move into the seasonally stronger second half of the year, we expect continued base business growth and profitability momentum. Demand for those services is growing as utility customers execute on multi-decade system modernization and safety initiatives. We also see opportunity to further expand and scale our gas distribution operations in the Northeastern United States and other select markets that provide attractive growth and accretive margin opportunities.

Additionally, our transmission and midstream pipeline operations are in active construction on several larger pipeline projects that are performing well. We continue to evaluate opportunities to strategically expand our pipeline and industrial operations as we gain scale and diversity. We believe the result will be a segment with higher margins, less cyclicality and a repeatable and sustainable earnings stream.

A frequent topic of conversation with the investment community of late is how we think our business might perform in a recessionary environment. Given the duration of the current economic expansion cycle, I want to stress that we are not seeing softness in our business, nor are any of our customers indicating to us that they are slowing down or concerned about a recession. That said, while we cannot predict the characteristics or magnitude of any future recession, in a hypothetical, normal, economic recession of moderate GDP decline and duration we believe that we could still grow our base business revenues, while largely maintaining our current margin profile.

Over the years, we have executed on our strategy to mitigate risk inherent in our business, including economic risk through diversification. We have a diverse customer base with low customer concentration, a broad and diverse geographic presence and a diverse and expanding line of services. We believe our diversification strategy, favorable industry dynamics and strategic investments we have made could largely mitigate the impact of a recession.

Overall, we believe the majority of our revenues are derived from customers and end-markets that are driven by longer-term, visible dynamics that should be resilient to economic softness. More than 60% of our revenues are driven by regulated utility spending. Utilities have multiyear investment programs that are necessary and have been approved by regulators to move forward.

It is worth noting that our Electric Power segment revenues have grown at a 7% CAGR since 2013, with base business revenues growing at a faster rate. This revenue growth occurred in an environment with flat electricity demand, significantly reduced larger project activity and the collapse of oil prices in late 2014 and 2015, which adversely affected our Canadian operations.

Our Pipeline and Industrial segment increased revenues consistently through the collapse of oil prices in late 2014 and 2015 despite challenges in Canada, which is an energy industry-driven economy. Since that period, we have significantly increased our base business operations. For example, our gas utility-driven distribution operations are meaningfully larger now than at that time.

Our end markets are driven by long-term secular dynamics that we have talked about during our earnings calls and investor events for many years. The infrastructure we build and maintain is required for a safe and reliable delivery of critical services that are necessary to support the economic and social prosperity of the people, businesses and industries in the geographies that we operate. We believe these dynamics and our positioning in the market put us in a position to potentially mitigate the impact of many economic concerns.

Our first half results have been solid, and we are increasing our full year revenue outlook for the second time this year to reflect our expectation of a strengthening second half. Our end markets and visibility are strong, and we continue to believe we're in a multi-year up cycle, with opportunity for continued record backlog in 2019. We are focused on our strategy of generating a more resilient and predictable earnings stream, and will continue to evaluate how aspects of our operations fit with our model and our core business.

Our customers' CapEx and OpEx plans continue to grow to historic levels. We are having conversations with customers about programs that are larger in size and longer in duration than we have ever experienced, and there is no sign of it slowing down in the near term. I strongly believe that the industry dynamics and the opportunities we see for at least the next 5 to 10 years is exactly what Quanta is built for.

We continue to expect our base business to grow double digits this year and account for approximately 90% of our 2019 revenues, and believe we can grow base business revenues at a mid-single-digit to double-digit CAGR over the next 3 to 5 years. We continue to see more than $3 billion each of larger electric transmission and pipeline projects, which is a conservative investment -- estimate, and expect some could be awarded over the coming quarters.

There are also prospects for new multiyear alliance programs over the near and medium term, and we expect robust growth from our communications infrastructure services operations with improved profitability.

We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class field leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all our stakeholders.

With that, I will now turn the call over to Derrick Jensen, our CFO, for his review of our second quarter results. Derrick?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [4]

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Thanks, Duke, and good morning, everyone. Today, we announced record second quarter 2019 revenues of $2.84 billion, a 7% increase over the second quarter of 2018. For the second quarter of 2019, net income attributable to common stock was $27.3 million or $0.19 per diluted share. Adjusted diluted earnings per share, a non-GAAP measure, was $0.31.

As disclosed in today's earnings release, we recognized a charge of $79.2 million during the quarter, which impacted both GAAP EPS and adjusted EPS by $0.54 per diluted share. The charge includes a reduction of previously recognized earnings on the project, a reserve against a portion of unpaid project costs incurred through the contract termination date, an accrual for a portion of alleged liquidated damages and estimated costs to complete the project turnover and close out the project.

As of June 30, 2019, Quanta has a net receivable position on the project of approximately $120 million, which we have now classified as a non-current asset. Included in this receivable is $87 million paid to the Peruvian agency during the second quarter through the exercise of advanced payment bonds posted for the project, which Quanta believes were wrongfully called. The bonds were to be exercised only if it had been determined the previous advance payments were not used for their intended purpose. The Peruvian agency exercised the bonds in their full amount without affording our Peruvian subsidiary an opportunity to provide evidence of its expenditures on the project. The expenditures incurred were substantially in excess of the advance payments, and we believe the entire advance payments had been used for their intended purpose. Therefore, we strongly believe we are entitled to reimbursement.

Quanta has never had a bond called by a customer, and it is the aggressiveness of their tactics, including the termination of the contracts and the inherent risks associated international arbitration that influenced certain of our assessments of our GAAP financial positions. We are disappointed with the way events have unfolded around the project and have filed for arbitration. However, we don't anticipate any additional meaningful costs for the remainder of 2019 or beyond. It is also important to note that the reduction in future operations associated with this Peruvian work has a negligible impact on our future expectations.

Turning to a discussion of our broader results. Our Electric Power revenues increased 10% when compared to the second quarter of 2018 to $1.73 billion, and represent record quarterly revenues for the segment. This increase continues to be driven by elevated levels of base business activity as our utility customers expand their investment in grid modernization and infrastructure hardening, particularly in the Western U.S. The strength of the base business in the second quarter 2019 offset approximately $138 million in reduced revenues from larger projects when compared to the second quarter of 2018. Also contributing to the increase were approximately $35 million in revenues from acquired businesses.

Our telecommunication revenues within the segment were negatively impacted by approximately $50 million for previously recognized revenue associated with the Peruvian telecommunications project that was reserved against as part of the $79.2 million charge in the quarter. Excluding the impact of the $50 million revenue reversal, our telecommunications revenues grew for the fifth consecutive quarter, with U.S. operations driving that trend.

Operating margin in the Electric Power segment was 5.4% in the second quarter of 2019 versus 9.3% in the second quarter of 2018. Included in segment margins is the charge associated with the Peruvian project, which negatively impacted segment margins by 430 basis points.

Excluding our telecommunications operations, which are included within the Electric Power segment, Electric Power margins were approximately 10%, a slight improvement over Electric Power margins during 2Q '18. The margin improvement was attributable to solid execution across base business activities in the segment, which helped to offset the anticipated softness during the second quarter from our Canadian operations due to normal seasonality and the transition of crews and equipment off the Fort McMurray transmission project. We had nominal, larger project revenues in Canada during the second quarter resulting in lower fixed cost absorption, however, 2Q '18 included the substantial contribution from the Fort McMurray project. Margins in our telecommunications operations bore the impact of the $79.2 million charge, resulting in a loss for the quarter. However, excluding that charge, margins were near mid-single digits, led by performance in our U.S. telecom operations.

Of note, as it relates to the Fort McMurray transmission project, you may have seen that in June 2019, our partner, Canadian Utilities Limited, an ATCO company, announced that definitive agreements have been reached to sell the Alberta PowerLine limited partnership. The sale is expected to close in the fourth quarter of 2019 or the first quarter of 2020, subject to receipt of regulatory approvals and satisfaction of other customary closing conditions and should result in gross proceeds to Quanta of roughly USD 47 million at current exchange rates.

Our Pipeline and Industrial segment revenues increased 1.7% when compared to the second quarter of 2018 to $1.1 billion. This increase is attributable to slightly increased revenues from larger projects. Operating margin for the Pipeline and Industrial segment was 6.3% in 2Q '19, an increase over the 4% margin in 2Q '18, which included a 40-basis-point impact related to combined charges associated with the impairment of a construction barge and severance and restructuring costs. The margin improvement over 2Q '18 is primarily driven by improved execution across our base business operations as well as higher earnings on larger pipeline projects.

The strength of these results overcame a $13.6 million additional loss associated with continued rework and startup delays on a processing facility that was approximately 96% complete as of June 30, 2019. A substantial component of this increased loss in the second quarter was incremental liquidated damages amounts due to continued delays in completion, which have now been accrued to the maximum contractual amount. We are in the final stages of this project, and believe we have accrued all known losses.

Corporate and non-allocated costs increased $17.5 million in the second quarter of 2019 as compared to the second quarter of 2018. This increase was primarily due to changes in the fair value of contingent consideration liabilities, with the $4.4 million increase associated with these estimates recognized in 2Q '19 compared to a $6.3 million decrease in 2Q '18. Also contributing were increased legal and professional fees and increase in intangible amortization expense.

Overall, 2Q '19 adjusted EBITDA, a non-GAAP measure, was $166 million, which includes the negative impact of the $79.2 million charge related to the Peruvian project. This compares to $199 million in the second quarter of 2018.

For the second quarter of 2019, we had negative free cash flow of $173 million. Cash flow used in operating activities was $109 million and net capital expenditures were $64 million. The largest individual driver of the negative cash flow was the exercise of the $112 million in bonds against Quanta in connection with the Peruvian project. Also contributing was continued mobilization and tooling costs on certain base business projects as well as ongoing extended collection cycles with certain utility customers.

As we discussed on last quarter's call, our periodic cash flow has been impacted by billing process changes for certain customers and other slower-pay dynamics that have impacted our ability to time the invoice and collect for services performed. This is not isolated to a single customer, and while these extended collection dynamics translate to increased contract asset positions on our balance sheet, we are not aware of any material risk to the ultimate billing and collection of these balances. These negative items were partially offset by the collection of approximately $109 million of pre-petition receivables related to PG&E's bankruptcy proceeding.

DSO for the quarter was 91 days compared to 74 days for the same period in 2018. Although impacted to some extent by the items previously described, 3 days of this ratio is attributable to the reclassification of significant retainage balances from long-term to current receivables during the first quarter of 2019 for the Fort McMurray project. We continue to expect collection of this larger balance by year-end. Also, 4 to 5 days of the ratio is due to the impact of retainment in various pipeline projects largely completed in previous periods.

We did not purchase any of our common stock during the second quarter of 2019, and had approximately $287 million of available authorization remaining on our $500 million stock repurchase program at June 30, 2019. Additionally, during the second quarter of 2019, we announced our third quarter cash dividend of $0.04 per share, totaling $6.2 million.

At June 30, 2019, we had $751 million in total liquidity, which resulted in a debt-to-EBITDA ratio, as calculated under our senior secured credit agreement, of approximately 1.99x. As of June 30, 2019, our aggregate total remaining performance obligations were estimated to be approximately $4.7 billion, approximately 77% of which is expected to be recognized in the next 12 months. Our aggregate total backlog as of June 30, 2019 was $12.8 billion, an increase of 11% over the second quarter of 2018 and 3% over year-end 2018. 12-month backlog was $7.5 billion, in line with the second quarter of 2018, and up 7% from December 31, 2018. Our total backlog continues to expand as we capitalize on the growing infrastructure investment activity across our end markets, and specifically, the longer-term demand for our base business activities.

Turning to guidance. Given the continued strength in our base business and improved visibility into the remainder of the year, we are increasing our consolidated revenue range to be between $11.5 billion and $11.9 billion. With regard to the Electric Power segment, we now expect revenues to range between $7.2 billion and $7.4 billion, with the third quarter revenues slightly higher than fourth quarter revenues due to normal seasonality.

On an annual basis, we see aggregate electric segment operating margins ranging from 8.4% to 8.9%, with the $79.2 million effect of the Peruvian project impacting annual operating margins by roughly 110 basis points. As it relates to operating margins associated with our electric operations, the timing of the commencement of certain larger projects in Canada that impacted second quarter margins is anticipated to continue somewhat through the third quarter. However, we expect Canadian operations will improve profitability in the fourth quarter, particularly as large transmission opportunities move to construction. We expect overall electric operations will maintain double-digit margins for the rest of this year at levels in line with the second quarter.

Regarding our telecommunications operations, we continue to see the opportunity for operating margins to achieve upper single digits by the fourth quarter of 2019, with our U.S. telecom operations leading the way with a potential to hit 10% by year-end. We now expect pipeline and industrial segment revenues to range between $4.3 billion and $4.5 billion. We see full year margins between 5.5% and 6%. We have lowered the top end of our margin range due to pressure from the approximately $22 million of year-to-date losses recognized on the processing facility, which impact margins for the year by approximately 50 basis points, at the midpoint of our revenue range. Our operating margin range otherwise reflects continued confidence in our ability to execute on base business work.

We expect third quarter margins to be the strongest of the year for the segment with the seasonal decline in the fourth quarter. While we expect increased revenue estimates to deliver profits within our guided segment margin ranges and incremental earnings per share, the negative impact of the $0.54 per share charge in the second quarter results in our full year earnings per share expectations to now range between $2.46 to $2.79, and our adjusted earnings per share expectations to range between $2.99 and $3.33. Similarly, our expectations for adjusted EBITDA, including the charge, now range between $852 million and $932 million.

From a cash flow perspective, compared to our original guidance at the beginning of the year, the $700 million increase in our overall revenue expectation and associated working capital to support this growth, as well as the unexpected cash outflow associated with the Peruvian project, together have impacted our cash flow expectations for the year by almost $200 million.

Additionally, wet weather delays impacted cleanup activities on certain pipeline project in the second quarter that have called into question our ability to collect several significant retainage balances by the end of the year, which if not collected by year-end, would become 2020 collection events. As a result of these items and some level of the previously described billing delays, we now expect free cash flow between $100 million and $300 million.

Given these cash flow dynamics, we are increasing our forecasted interest expense to range between $58 million and $60 million. Looking beyond 2019, we continue to expect stronger free cash flow generation as our base business activities create a more recurring and predictable earnings profile, with the primary cash flow pressure being attributable to working capital to support revenue growth.

While our second quarter results were negatively impacted by the Peruvian telecommunications project, we believe our broader performance and increased annual revenue guidance continues to reinforce the quality of our craft-skilled labor workforce and the ongoing demand for our services. We continue to be confident in the strength of our operations, our prospects for profitable growth and the repeatable and sustainable nature of our core markets.

This concludes our formal presentation, and we'll now open the line for Q&A. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Andrew Kaplowitz of Citi.

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Andrew Alec Kaplowitz, Citigroup Inc, Research Division - MD and U.S. Industrial Sector Head [2]

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Duke, can you give us some more color on how to think about fire and storm hardening? The concern that some investors have is that fire hardening work may peak this year in California, but I know you mentioned the example with the long-term spend potential of your storm-hardening customer in Florida, which makes sense. When we look at fire hardening, it looks like PG&E's higher spend would be in relatively near term. So what kind of visibility do you have to fire hardening initiatives leading to multiyear growth?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [3]

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Yes. I think when you look at the Western U.S., not only California, in the fire-prone areas, you've seen loss of life. And when you see those kind of things, typically the regulator and the public utilities will get behind programs that enhance this grid and harden the grid. And I believe that's the case and that's what you're seeing, the early stages of that. People are certainly willing to pay for more modern, more robust systems. And that's -- it's modernization as well as storm hardening coupled together that's creating the build across North America and the world for that matter to support that. And I think when you look back and you look at back on the East Coast and what we've done on the coastlines on hurricanes, some could say wherever we're at, we've been doing this for a bit of time and there's a lot of legroom left on that. This is in the very, very early stages and the systems are older systems, so it's going to take a long time. I think they're multiyear spends that we're certainly in the early stages in the Western part of North America.

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Andrew Alec Kaplowitz, Citigroup Inc, Research Division - MD and U.S. Industrial Sector Head [4]

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Duke, somewhat of a related question, but you've continually talked about $3 billion of large projects visibility in both Electric Power and Pipeline and Infrastructure. But you sounded a little bit more confident about large electric power projects (inaudible) both -- I think you used the word imminent. Did something change over the last few months to where maybe there's a bit more urgency for our customers? Or is it just time has passed by so you're getting closer to larger project work?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [5]

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I think for our standpoint, we're trying to point out the fact that the larger project pipeline is still there and robust. It hasn't moved. I guess, if I said 10, we'd have to calculate that every quarter, so we just say it's more than $3 billion to give you a sense that it's out there. When we look at these larger projects, we see more of them today than we did last quarter. They're supporting, like we said on the call, your data centers, your LNG exports, they all take substations' big load, all your industrial centers are growing. All that takes big load. Your Permian Basin, we talked about, that's load. So you're seeing those larger projects come into play now more so than you've seen in the past.

What we've done over the past 2 or 3 years or even longer, we've done it with no load growth or even negative load growth. So now as you start to see these larger complexes come into play, you start to see load growth and the need for transmission and larger transmission. So yes, I do think, today, we certainly see more larger electric transmission projects than we have in the past, and I believe we'll see some awarded in the next few quarters.

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Operator [6]

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Our next question comes from the line of Noelle Dilts of Stifel.

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Noelle Christine Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [7]

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So just looking at some of these kind of challenges you've had on certain projects like you mentioned in the Peruvian and the processing project. Do you view these as just kind of things that occur during the normal course of business? Or are you making the efforts to sort of strengthen the project oversight and trying to avoid those types of issues?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [8]

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Yes. Noelle, the project was a processing facility here in Texas, but that's the first one. In general, what I would say is both of those projects were bid over 4 years ago, started even lower than -- longer than that. So when you think about it and you think about what we said about the business and our strategies around it in our strat plans, we said we would get more repeatable, sustainable and earnings streams that are more predictable. So as we've done that -- those two are legacies. Everything we've done after we talk about -- we went -- we had a strategy, we said we'd go 10 and 1. We've continued on that path to be more repeatable, sustainable as a company. That's what we've done and that's what's in the backlog going forward. We'll finish these projects up. But you can look at the backlog and look at going forward, it's all around that strategy. And what you'll see on the future is around that strategy.

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Noelle Christine Dilts, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [9]

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Okay. That's helpful. And then second, could you just comment on, expand upon what you're seeing with Stronghold in the quarter and how you're thinking about turnaround and maintenance work as you look into the back half of this year and into next?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [10]

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Yes, Stronghold's done a great job positioning ourselves in the industrial market. We're really proud of that business. It continues to meet expectations or beat expectations and set records for their selves. So we're excited about the industrial business and what it's done for us. It positions us well in the Gulf Coast, and we're very, very happy with the management team there.

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Operator [11]

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Our next question comes from Tahira Afzal of KeyBanc Capital.

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Tahira Afzal, KeyBanc Capital Markets Inc., Research Division - MD, Associate Director of Equity Research, and Equity Research Analyst [12]

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Just going back to your prepared commentary, confidence around mid-single-digit growth in your base business and hopefully some projects layering on top of that. You know, if I do the math and really assume that your margins bounce back next year, which I hope they do and expand, I mean, am I thinking wrong when I'm thinking about adjusted earnings power of nicely above $4 by 2021?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [13]

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Yes. Tahira, look, I'll let Derrick do the math. But what I would say for myself is we are creating a nice base business that continues to see growth across the board supporting our utility customers. But our CapEx and OpEx spends continue to get bigger. Our telecom business is extremely robust. As we look at our gas distribution business, our industrial business, it's robust. So everything that we see on our end markets allows us to think that we'll grow the company, will expand some margin profiles within the segments.

We've talked about a double-digit on the electric side. We believe we can operate there over time. We've talked about on the gas to continue to bring it up in the mid-singles, even higher single digits on some of the areas in that as we move forward. So we do believe that's possible. We'll continue to strive to do that. 90% of this year is base business, we believe we'll tack on some larger projects as we move into next year. So the opportunities are there. We continue to drive the base. How it equates to EPS, I'll let Derrick roll it out.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [14]

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Yes, I mean, I don't have anything to add. It's all based upon what happens in the core aspects of our business, which Duke laid out. And those -- that math would translate into the numbers that you kind of referenced.

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Tahira Afzal, KeyBanc Capital Markets Inc., Research Division - MD, Associate Director of Equity Research, and Equity Research Analyst [15]

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I hear you, Derrick. And just based on what you've laid out for the future, I don't know if the free cash flow revision to your guidance for this year constrains you. But should I be thinking this is an opportunity to buy out stock proactively?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [16]

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As far as from our perspective, we don't comment as to how we'll be in the market relative to the buybacks of individual stocks. I'll tell you the #1 things we've focused on is kind of what the near-term opportunities are for deployment of capital. And a lot of times, that has to do with what we lean into first in the working capital as well as acquisitions and investments, et cetera, all mindful of the liquidity position of the company. So we have had some movements in kind of working capital demands. And so we'll be very focused on ultimately making sure that the levered profile stays within our boundaries. Having said all of that, you can see we've been an active buyer of our stock for a number of years and you can see the levels at which we have moved into it.

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Operator [17]

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Our next question comes from Steven Fisher of UBS.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [18]

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Just wanted to start off on Peru. If you could just -- I know Derrick you walked through some of the numbers, but maybe just frame for us what's really the kind of the worst-case scenario here to make sure we've kind of ring-fenced what the earnings charge and the cash flow impact could be?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [19]

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Well, on a go-forward basis, we don't have anything in our expectations relative to this contract. The aspect of -- everything is, on a go-forward is, is effectively recurring operations and nothing associated with the contract as the contract was terminated. We have no backlog and no revenue expectations. On a year-to-date basis, I mean, we have taken a charge that we think puts us in the position towards the most likely scenario of our recovery. We do believe that there is very much the level of upside to the position because as we go into arbitration, we think our positions are strong. We do believe that we'll be putting forward various cases that will lead to a degree of recovery. I will say that, as I commented to my remarks, we do have a receivable position of about $120 million left on that contract. The largest component of that is associated with the bonds that we think, which we believe were pulled wrongfully.

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [20]

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And I want to comment as well on that. Peru, when we look at that on the face of it, we will defend that vigorously. We will go after it in the most extreme effort that we can. We're putting everything we have behind that as far as collecting our money, collecting what's rightfully owed to us. We believe that's wrongfully terminated. And just on the face of it, we've basically built a fiber-optic network for the people of Peru and paid them to do it. So it doesn't make sense just on the face of it, it doesn't make sense from the contractual language, and we'll defend it vigorously.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [21]

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One follow-up there is just is there anything worse that they could be asking you for than the $157 million that you have denoted in the press release?

And then my real follow-up question is really on the telecom side of the business. What still has to happen for you to you achieve that upper-single-digit margin in telecom exiting the year?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [22]

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Yes. I'll just -- to Peru first. Peru can ask us for anything under the sun. The problem is that they're on the wrong side of it, we're on the right side of it. And the contracts we've accrued, what we believe -- or we've expensed what we believe is the right number, and we believe we'll be on the other side of that as we go into litigation.

As far as what we need on telecom to get in double digits, it's scale, we're scaling in many areas, we have the opportunities to add more backlog, more customers, and I feel extremely confident as we get into the second half of this year, we'll continue to increase margin incremental level, while also adding customer bases.

What's unseen is our place in 5G. The 5G component of telecom is unseen and why Quanta is positioned in the right spot. 5G, you need an antenna today every 562 feet for density, and that would have to go in your distribution arena. And so every single pole out there, 562 feet apart, needs an antenna, it needs an electric line. And so in order to do that, in order to get all the technology that you hear about autonomous vehicles, data centers, the cloud, edge, whatever it may be, it's a convergence of heavy fiber and your 5G antennas. We sit right in the middle of that. And I can't say it enough of our opportunity there and how well we believe we're positioned for that opportunity in the future.

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Operator [23]

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Our next question comes from Chad Dillard of Deutsche Bank.

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Chad Dillard, Deutsche Bank AG, Research Division - Research Associate [24]

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So I was hoping you could bridge the operating cash flow in the back end of the year. And maybe talk about how you are thinking about when the mobilization will peak out and the working capital burn will subside, and any incremental cash that you get from PG&E? Is there any additional outflow from like the Peru situation that we need to contemplate? Or any other project that's in the loss-making position that could burn cash?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [25]

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Yes. First, just -- I'm going to talk a little bit about the cash outflow. When we think about it, we have 41,807 employees, that's up quite a bit as we move forward here. And it's a good thing for us to be adding people to this base business and cash going out as long as it's coming back in at a more rapid pace. So us in the base business, as long as we continue to grow and grow at the rates we're growing at, you're going to have some cash outflow. And you'll get more consistent as the growth rate stays fairly flat.

We do have some aberrations in this quarter, but that base business has pulled cash out and it will come back in. I do think when we look at it today, the DSOs on the base business are up, they're up due to our customers catching up with that base business growth. And so it's been more difficult for us to get invoices in to the customer, they're paying us on time, but the interface between us, they're behind us. And so we're catching up, they're catching up. As they catch up, I believe you'll see our DSOs on the base business going to a more normalized level. And I'll let Derrick comment on the rest.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [26]

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Yes. I agree with Duke's commentary. As it relates to the year of that, we are running about 91 days here. I would tell you the Wolf/Mc collection alone will -- is probably a 3-day reduction. I think that the timing of the work typically for us is that we have cash outflows in the first portion of the year, cash inflows in the back half of the year. I still think that's the same thing for 2019. I think we have the ability to have positive free cash flow in the third quarter and a greater amount in the fourth quarter, again kind of mimic our typical seasonality with that.

Part of it is we have a lower level of revenues in the fourth quarter, and that's based in the model and that typically leads to a turn of cash. As well as I do think as to Duke's commentary, we'll see a degree of reduced DSOs. I think that you could see DSOs by the end of the year getting down into the kind of the low 80s; that's consistent what I think what our commentary was in the first quarter, getting down into that kind of level. And then to Duke's point, as we go through, that will, I think, lead to generally normalized type of collections and billing cycles associated with the customers.

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Chad Dillard, Deutsche Bank AG, Research Division - Research Associate [27]

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That's helpful. And then just switching over to Lat Am. In the release, you mentioned that you're evaluating whether to just stay in the business. And I was hoping you could give a little bit color on that. Is there potential sale? Is it of a wind-down? How are you thinking about the time table or the framework to approach that decision? And then lastly, how big is that business right now?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [28]

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Yes. So to answer your question, in Lat Am, certainly all those strategies are on the table. What I would say is the company has said and continues to believe our strategy is to be more repeatable, sustainable, less risk. If Lat Am is creating risk, both from a macro standpoint, geopolitical standpoint, we are focused on derisking the business as a strategy. So when we look at that, we went to Latin America to support our North American customers on their builds in those countries. We felt like that we mitigated those risks, even in this project. It was a 10-year, $250 million project that had a lot of maintenance over time. We felt really good about where we were at. When you have geopolitical type risks in countries that change from a growing middle class to something different, we'll certainly look to derisk those business and derisk those parts of the world. So we've stated our strategy and we're certainly sticking to that.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [29]

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On a run rate basis, I would say that Lat Am is probably in the $100 million range at this stage.

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Operator [30]

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Our next question comes from Brent Thielman of D.A. Davidson.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [31]

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Duke, on the fire hardening initiatives, and in particular, I guess, the work with PG&E, are they being more selective in terms of who they're working with, just given their current position in Chapter 11? I'm just wondering if that's actually allowing you to capture some more share with them?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [32]

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Yes. I mean, we've been an alliance contractor for PG&E a long time. They've -- probably our top electric customer for a while. And we've supported each other many, many times. We know the area, we know the people there. So it's a great customer. But it's one customer. The whole western hemisphere has fire-hardening projects. We really get more programmatic where we're doing much more than just construction out there. We're doing a lot more globally, for that matter, when we look at engineering, when we look at the distribution engineering, some things of that nature. The company is really looking at more programmatic stuff.

And as -- they can't -- you can't, as a utility, ramp that fast, so we're able to basically help them, collaborate with them to create the right environment, create the right cost structure for the rate payers as well. And so it really makes a lot of sense for us to collaborate on a lot of these big builds in the West, as well as everywhere for that matter. Labor resources are tight. We've invested over $100 million in training. It bodes well for us as we move into these kind of environments. And we've said it on the call, I'll say it again, we've never seen the type of environment that we've had today and the type of macro markets that are out there that Quanta can take advantage of and sit right in the middle of. It's right down the middle for us and what Quanta was built for.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [33]

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Okay. I appreciate that. And my follow-up is on the pipeline side. I mean, it sounds like plenty of work to do work there. I guess, are you seeing any customers trying to accelerate project schedules as we're kind of getting into an election year and maybe there's some questions about what the regulatory environment looks like 2 years from now?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [34]

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Yes. I mean, I would tell you that like every one of them would accelerate as fast as they can go. It's just they're going to be prudent about how they permit and making sure that all the permits, their i's are crossed and t's are dotted. It's not fun to get on these projects and stop and start for them or us, and so I prefer they get all their permits, and I know they think the same thing. That being said, I do believe that the processing will get easier with the current FERC administration, as well as in D.C., over time as the courts get more normalized and things of that nature. But as far as the Permian Basin seeing a lot coming out of Texas, lots of support in LNG, Canada's got some projects that are fixing to go, so we do see a lot of activity still in large pipe for the next few years, at least. And it's -- we're still looking at work, booking work today for this year.

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Operator [35]

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Our next question comes from Alex Rygiel of B. Riley FBR.

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Alexander John Rygiel, B. Riley FBR, Inc., Research Division - Analyst [36]

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Derrick, could you clarify what was the revenue expectation you thought the telecom business could deliver in 2019? And how does that compare to 2018?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [37]

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Yes, at this stage, I would say that we're probably in the $400 million to $450 million run rate type range. The number gets a little bit kind of hard to deal with when you're dealing with the revenue adjustment on the Peruvian project. But on a run rate basis, it's probably in the $400 million to $450 million type range. Last year, I think we were at the -- I think we ended the year around $350 million, but I'd have to double-check that.

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Alexander John Rygiel, B. Riley FBR, Inc., Research Division - Analyst [38]

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I'm sorry, and that's total company or is that just U.S.?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [39]

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That's total company. Last year, we ended up about $270 million.

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Alexander John Rygiel, B. Riley FBR, Inc., Research Division - Analyst [40]

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Okay.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [41]

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I would say in general, we paced that growth and the opportunity for us to grow more is certainly there. We wanted to make sure the permitting and such was in place before we started deploying mass crews to the systems. We're really worried about the margin profile there and making sure that we deliver on that. And that's certainly by design. The business itself and the business that's out there, we could pull the business up much more, but it would dilute margins on the growth. And I don't think it's the right thing to do. I think we'll pace it, scale it more efficiently. So it's by design. We can certainly move that -- move the needle up quite a bit there on the revenue side.

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Alexander John Rygiel, B. Riley FBR, Inc., Research Division - Analyst [42]

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And then more of a bigger picture question. With a company that can deliver $900 million to $1 billion in EBITDA, what do you think a more normalized free cash flow number should be at some point over time on an annual basis?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [43]

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The beginning of the year, we commented that we thought we could see free cash flow conversion related to EBITDA in the 40% type range. I continue to think that we have the ability to see that. The biggest change that you saw relative to that expectation this year was the growth in the revenue side, which we said would always create potential drives against that number as well as what we've dealt with here relative to the Peruvian side. But on a go-forward basis, we see the ability just to get increase that conversion ratio and I think you can see numbers approximating that 40% original guidance.

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [44]

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And I would say also that just our deployment of baseload crews is unprecedented. It just is. We're deploying a bunch of baseload crews at this point.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [45]

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And to Duke's point, those are the things that influence that number for us. Growth is inherently the biggest wild card relative to how we think about cash flow.

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Operator [46]

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Our next question comes from Jamie Cook of Credit Suisse.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [47]

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Most of my questions have been answered, but I guess Derrick or Duke, when we think about the Pipeline and Industrial business, the margins have grown this year with some onetime headwinds to margins and without big pipeline work. So I guess as I think about over sort of the next couple of years, understanding there is some scale that need to be had and geographic diversification, how do I think about normal sort of margin progression in that business assuming the base business seems -- tends to grow in line with your expectations? I mean because this year, if we adjust everything out it's probably up almost -- I think it's up to 6.3% relative to 4.3% last year. So I'm just trying to think is that a normal margin agreement that we should see as the base business tries to grow without pipe?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [48]

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Jamie, I think we've said that we'll continue to increase those margins into your upper single digits. And that's certainly the aspiration of the company, the goal of the company where we're at today, but it'll incrementally get better in the year 7, 8, even year 9 as we move forward in my mind. It's that type of business. It's repeatable, sustainable. We can get up in those ranges and certainly you've seen us take -- if you look at just our distribution business, which we're not going to break out, but it's there, and it's done much, much better as we've scaled these offices.

As we move into the Northeast and do some other things, I think in general, you'll see the whole segment move up. Our major projects, we're derisking those as well. So I believe our industrial business and our distribution business is stronger and stronger, our pipe business is there, it throws off a lot of free cash. When that gets going, it certainly stacks on top, but it's not necessary to get in those type of margins.

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Operator [49]

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Our next question comes from Adam Thalhimer of Thompson Davis.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [50]

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I wanted to ask first about the margins in Electric Power. We came into Q2 thinking that was going to low point for the year. You outperformed that, and I'm just curious why you outperformed in Q2?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [51]

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Yes. I think when you look at 2Q, you see a lot of strength to the company in scaling even with adding crews. So you had a lot of utilizations across the board. We were busy, working more man-hours than we anticipated. It gets some utilizations on your equipment so your margins improve. I will say we did have a drag in Canada just like we thought we would, and it will continue in the third quarter to be somewhat of a drag. But I can only say that it's because the -- it's by design we believe the fourth quarter will pick up substantially, and there are some things on the table that we believe will allow us to continue to grow the business in 2020 and beyond. So we're pretty excited about Canada, what's going on up there as well as our base business. And we continue to get fully utilized or even more so.

So as we deploy crews, we get scale, it creates margin. We talked about it many times that we should look at that business in kind of a 10% business over time. And I will stand by it. It will -- sometimes you'll see 11%, sometimes you'll see 9%. But over time, we can create that 10% margin profile. It will fluctuate a little bit quarter-to-quarter. If you have storms, if you have more work, if you're working more time, because your equipment gets fully utilized. So it's more of a product of utilization on our fleet.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [52]

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Okay. And then you raised back half guidance versus what you thought 3 months ago. What are the biggest drivers behind that?

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [53]

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I think from my standpoint, when we look at our business, look at our man-hour runs, look at our headcounts in the second quarter, we see a more robust second half on our base business. It allows us to move that up, and we've talked about prudent guidance and how we think about it. And we're guiding to the back half to the year. And as we go through it, operate through it we'll certainly continue to evaluate where we sit on any given quarter, on any given second half but, in general, I think we continue to get stronger and have the opportunity to even strengthen more in the back half.

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Operator [54]

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Our final question comes from Justin Hauke of Robert W. Baird.

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Justin P. Hauke, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [55]

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Yes. So just couple of more very quick cash flow questions. But can you remind us, what's the remaining AR that's tied to PG&E that's still is out there? And then does your guidance for $100 million to $300 million, does that include the $47 million you're planning to pick up on the Fort McMurray sale? And what quarter does that fall in?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [56]

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Yes. The noncurrent asset component of PG&E is still roughly about $41 million. That is not in our expectations for this year. We still look at that as something that has the risk of going back or going into 2020 type of event. And then the Fort McMurray sale is not in our expectations at this stage. We believe that that has as much of a degree of risk of being into the first quarter part of 2020. So at this stage, it's not our current expectations.

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Justin P. Hauke, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Associate [57]

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Okay. And then, I guess, one last one on Peru. I think their total damages that they're claiming, if you add it up, is $157 million. And the cash that you guys have paid out, including the bonds that exercised, I think was $114 million. So I guess the question is, is that delta, the amount, I mean if everything went against you that ultimately there is $40-plus million of potential cash that could go out? And I guess the second part of that would be, are there any additional performance or surety bonds that they have the power to exercise?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [58]

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There are no additional bonds outstanding. And I'd probably come back to answer the question more along the lines of I have $120 million of receivables still on the books. And to that end, that's the position we'll be looking to collect at a minimum.

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [59]

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And I don't believe that's the case. I believe that we'll eventually prevail and collect our bonds and beyond. So I don't believe -- we're in a position, the right position, and it should go the other way in my mind.

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Operator [60]

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Ladies and gentlemen, we've reached the end of our question-and-answer session. I would like to turn the call back to management for closing remarks.

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Earl C. Austin, Quanta Services, Inc. - President, CEO, COO & Director [61]

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I want to thank our 41,807 employees. They're dedicated to the success of Quanta. I'd like to thank you all for participating in our second quarter conference call. We appreciate your questions and ongoing interest in Quanta Services. This concludes our call.

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Operator [62]

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This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.