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Edited Transcript of PWR earnings conference call or presentation 2-Nov-17 1:00pm GMT

Q3 2017 Quanta Services Inc Earnings Call

HOUSTON Nov 3, 2017 (Thomson StreetEvents) -- Edited Transcript of Quanta Services Inc earnings conference call or presentation Thursday, November 2, 2017 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. - CEO, President, COO and 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

* Andrew Alec Kaplowitz

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

* Andrew John Wittmann

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

* Brent Edward Thielman

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

* Chad Dillard

Deutsche Bank AG, Research Division - Research Associate

* Charles Matthew Duncan

Stephens Inc., Research Division - MD

* Jamie Lyn Cook

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

* Noelle C. Dilts

Stifel, Nicolaus & Company, Incorporated, Research Division - VP and 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, ladies and gentlemen, and welcome to the Quanta Services Third Quarter 2017 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, Vice President of Investor Relations for Quanta Services. Thank you. You may begin.

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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 conference call to review our third quarter 2017 results.

Before we begin our discussion, I have the normal housekeeping details to run through. 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 encourage investors and others interested in our company to also follow Quanta on the social media channels listed on our website.

Please note that in today's call, we will present certain non-GAAP financial measures. In the Investors & Media section of our website, we have posted reconciliations of the differences between these measures and their most directly comparable GAAP financial measures.

Please remember that information reported on this call speaks only as of today, November 2, 2017, 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 forward-looking statements include all 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.

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 company's 2016 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.

Management cautions that you should not place undue reliance on forward-looking statements, and Quanta does not undertake any obligation to update any forward-looking statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call.

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. - CEO, President, COO and Director [3]

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Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services Third Quarter 2017 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 third quarter results. Following Derrick's comments, we welcome your questions.

Quanta continues to make incremental progress on enhancing certain margin profiles while strategically investing in our recurring revenue base business.

We continue to believe there's opportunity to create significant shareholder value as we execute on our strategic initiatives. We achieved record quarterly revenues and solid adjusted diluted earnings per share growth as compared to the third quarter of last year. More importantly, we're confident that Quanta is well positioned for continued growth in revenues and earnings.

I am pleased to report that we ended the quarter with a record backlog of $10.5 billion. I would note that our backlog does not yet include a couple of larger projects we have previously announced, primarily due to the ongoing permitting and regulatory approval processes.

We're confident that these projects will move forward and expect to include them in backlog when we have better visibility into mobilization. We continue to believe end market drivers are firmly in place and that we have the opportunity to achieve new levels of record backlog.

During the third quarter, 3 hurricanes devastated parts of Texas, the Gulf Coast, Florida, Puerto Rico and the Caribbean, causing significant damage to the electric power grid and other infrastructure. Quanta deployed significant resources during the quarter to many of these areas to assist our customers with power restoration.

As a result, emergency restoration services revenues were approximately $130 million, nearly a record, driven primarily by Hurricanes Harvey and Irma, and to a lesser extent, Hurricane Maria.

In addition, we continue to evaluate ways Quanta can supplement and support power grid restoration efforts in Puerto Rico. Preplanning with our customers in days before these hurricanes made landfall allowed us to position the majority of our resources in or near impacted areas well in advance of the storms, enabling us to begin restoring power as soon as it was safe to work.

Our employees had no serious safety incidents despite working more than 1 million manhours in extremely challenging environments. We want to congratulate our crews for their commitment to safety and thank them for their dedication to restoring power to those affected by these catastrophic storms.

Additionally, we believe the significant investments the utility industry has made in hardening electric systems facilitated the power recovery faster than we have seen in the past.

In our view, these proof points support the value system hardening and modernization initiatives, which further supports our growth expectations for the electric power segment.

The high level of emergency restoration revenues during the quarter were largely offset by the negative effects the events had on our ongoing operations in the impacted areas. The historic flooding caused by Hurricane Harvey significantly impacted our industrial services operations and adversely affected our day-to-day electric power work along the Gulf Coast for several weeks.

We have a large number of employees located throughout the Gulf Coast, some of whom experienced significant property damage from hurricanes. Further, many of our employees were away from their families during and after hurricanes, restoring power to others.

In response to the hurricanes, we created the Quanta Cares employee relief fund. Contributions from Quanta, employees, vendors and other partners raised nearly $1.3 million, much of which is being distributed to over 200 employees who are recovering from damage caused by the hurricanes.

Additionally, after the storms, hundreds of our employees were active in their communities, helping neighbors and other Quanta employees. We say that Quanta is a family, and the way our employees help others in need exemplifies the Quanta culture.

Turning to the electric power segment. We are generally pleased with our performance during the quarter. As just discussed, strong emergency restoration activities were partially offset by work disruptions caused by the hurricanes during the quarter.

Additionally, the profitability of our Canadian operations improved in the third quarter as compared to the same quarter last year. We have completed construction activities on Labrador Island Link transmission project and are successfully transitioning resources to ramping up activity in Fort McMurray West transmission project, which began construction in the third quarter. As we increase activity levels on the project, we expect further improvement in the profitability of our Canadian operations.

We have agreements for and continue to discuss additional large transmission project opportunities with numerous utilities and merchant transmission companies in North America. Several of those projects are making progress through the permitting and regulatory approval process with announcements possible in the medium term.

Our customers are actively executing on existing capital programs, small and medium transmission projects as well as distribution work remains active, and we continue to expand and formalize with customers these solutions we can deploy for new large multiyear capital programs. These programs include both larger and smaller electric power infrastructure projects that are designed to upgrade and modernize the grid. We believe there are opportunities for new alliance agreements, with Quanta playing an important role supporting our customers' multiyear capital programs.

Our communications infrastructure services operation, which is part of the electric power segment, are gaining momentum. Our U.S. market expansion efforts are going well. We continue to be very well received by our current and potential customers.

We remain focused on organically growing these operations. However, we will evaluate select acquisitions that bring strategic value to Quanta, allow us to provide differentiated solutions and accelerate our U.S. expansion efforts.

Subsequent to the end of the third quarter, we have secured more than $200 million of new project awards in North America, the majority of which were in the United States. Quanta's scope of the work on these projects includes fiber-to-the-home deployments, fiber backhaul and long-haul fiber installations, and we expect to perform this work over the next few years.

Our oil and gas segment generated record revenue during the third quarter despite negative impacts from Hurricanes Harvey and Irma. These events significantly impacted our industrial services operations due to the work disruptions, deferrals and project cancellations. We expect the impact of these storms to negatively influence the industrial services portion of our oil and gas segment for the balance of this year.

While it's still early, our mid- and longer-term expectations for these operations are still very much intact, with the potential for the incremental work in 2018 due to work deferrals caused by hurricanes this year.

During the third quarter, FERC regained a commissioner quorum, which has significantly improved our regulatory visibility and project construction timing for the pipeline industry. As a result, FERC has begun to clear the large backlog of major pipeline and other infrastructure projects awaiting final approvals. Several major pipeline projects have since been approved by FERC, including the Atlantic Coast Pipeline project, a portion of which was previously awarded to us but was not reflected in our backlog, partially due to the uncertainty about the timing of FERC approval.

The Atlantic Coast Pipeline is a proposed 600-mile natural gas pipeline planned to run from Harrison County, West Virginia to Robeson County, North Carolina. We expect the majority of work will be performed in 2018 and 2019. Our portion of this project is now included in the backlog, with a contract value in excess of $0.5 billion.

Based on these developments at FERC, conversations with customers regarding a number of larger pipeline projects are accelerating, and the timing of contract signing is gaining greater near-term visibility.

As a result, we continue to believe that demand for large diameter pipeline spread resources can reach full capacity over the next couple of years.

As we have discussed for some time, our end markets are experiencing historic levels of capital and operating investments, which we believe will continue for the foreseeable future. As a result, demand for skilled labor is high and industry resources are increasingly strained.

For many years, Quanta has been making strategic investments in safety, training and recruiting to become increasingly self-reliant to ensure that Quanta is a preferred employer in our industry and has the qualified workforce we need to grow our business.

Our ongoing investments in training through Quanta's world-class training facility, college and trade affiliations, assistance with the formation of a nonprofit line school and other regional activities and our commitment to meeting the long-term needs of our customers sets us apart in the marketplace and will continue to pay dividends.

In summary, we delivered a solid operating performance in the third quarter despite facing severe weather events that affected our operations. While we now expect 2017 earnings to be down slightly from our previous expectations, this is entirely due to the floods, effects of the hurricanes during the third quarter and the carryover into the fourth quarter.

As I hope you have heard in my remarks, our end markets are strong. Visibility is improving, and we continue to believe we are in the earlier stages of our renewed multiyear upcycle with continued opportunity for record backlog.

While we will provide our formal commentary in 2018 expectations on the fourth quarter earnings call next February, I am confident there's an opportunity for Quanta to grow its top and bottom lines in 2018. We expect our base business to continue to grow. We see continued opportunity for the award of larger, high-voltage electric transmission projects in multiyear alliance programs over the near and medium term. We believe the larger diameter pipeline market is robust with a multiyear cycle ahead of us and expect our communications infrastructure services operations to grow.

Our qualitative outlook for our business is largely shaped by our collaborative relationships with our customers, which gives us valuable insight into their multiyear infrastructure capital programs.

We are focused on operating the business for the long term, and we will continue to distinguish ourselves through safe execution and best-in-class field leadership. We will pursue opportunities to enhance Quanta's core business and leadership position in the industry and provide innovative solutions to our customers.

We believe Quanta's unique operating model and entrepreneurial mindset is the foundation that will allow us to continue to generate long-term value for all of our stakeholders.

With that, I will now turn the call over to Derrick Jensen, our CFO, for his review of the third 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 third quarter revenues of $2.61 billion. Net income from continuing operations attributable to common stock was $89.3 million or $0.56 per diluted share compared to net income from continuing operations attributable to common stock of $73.1 million or $0.47 per diluted share in the third quarter of 2016. Adjusted diluted earnings per share from continuing operations attributable to common stock, a non-GAAP measure, was a record $0.63 for the third quarter of 2017 compared to $0.55 for the third quarter of 2016.

Favorably impacting the quarter was a $5.5 million or a $0.03 per diluted share tax benefit from a decrease in reserves for uncertain tax positions resulting from the expiration of certain statute of limitation periods.

Consolidated revenues increased $567.1 million or 27.8% when compared to the third quarter of last year. This overall increase was primarily due to increased customer capital spending associated with electric and various gas transmission projects, $100.1 million of incremental emergency restoration services revenues and $85 million of revenues from acquisitions, most of which related to the acquisition of Stronghold.

The most substantial financial items of the quarter resulted from the impacts of the various hurricanes. We executed on approximately $130 million of emergency restoration service revenues, an amount comparable to our highest levels ever performed in the quarter.

Although this work often offers higher gross margin opportunity, large adverse weather events can come with offsets. This quarter, the negative aspects of the storms offset much of the positive contributions.

First, within our electric power operations, the negative impact of Hurricane Harvey caused various work shutdowns, delays and inefficiencies as well as an increase in employee support costs. Further, as Duke commented in his prepared remarks, Harvey specifically impacted our oil and gas industrial services operations in the Gulf Coast region.

Our annual guidance provided in our second quarter 2017 earnings call included post-acquisition expectations for Stronghold to be approximately $240 million to $260 million of revenues.

Although we do not intend to continue to provide quarterly commentary on specific acquisitions, due to the significant storm impacts on our operations, our post-acquisition revenue expectations are now $170 million to $190 million for Stronghold.

In addition, the acquisition was previously expected to be accretive to Quanta's 2017 annual non-GAAP adjusted diluted earnings per share attributable to common stock by $0.06 to $0.07. We now anticipate the impacts of the disruptions attributable to the hurricanes will cost the transaction to be dilutive to our annual adjusted diluted earnings per share estimates by around $0.05.

Ultimately, these negative effects largely muted the overall positive contribution of emergency restoration service work to the quarter and the year.

Returning to our consolidated results. Our consolidated gross margin was 13.4% as compared to 14.8% in the third quarter of 2016. This decrease was driven by factors, which I'll discuss later in my remarks, related to segment results.

Selling, general and administrative expenses were $201.2 million in the third quarter of 2017 or 7.7% of revenues as compared to $164.3 million or 8% of revenues in last year's third quarter. The increase in SG&A was partially due to $16.9 million in incremental general and administrative of costs associated with acquired businesses, which included a $3.3 million increase in acquisition and integration costs.

Much of the remaining increase was due to higher compensation costs largely associated with higher incentive compensation based on current levels of profitability as well as annual compensation increases and increased personnel to support business growth.

To further discuss our segment results. Electric power revenues increased 23.1% when compared to last year's third quarter to $1.5 billion. This increase was primarily due to higher customer spending associated with electric transmission projects and $101.1 million in additional emergency restoration services revenues.

Operating margin in the electric power segment increased to 10% in the third quarter of 2017 as compared to 9.7% in last year's third quarter. This increase was partially due to the increase in revenues described above, including the incremental emergency restoration services revenues, which typically yield higher margins, partially offset by the delays and other effects I discussed previously.

In addition, we had an electric transmission project in the Lower 48 that underperformed against our expectations and experienced increased costs associated with road access, subcontractor and labor productivity issues, which resulted in a $9.4 million loss during the third quarter of 2017. The project was approximately 80% complete as of September 30, 2017, and should be near completion by year-end.

Lastly, the necessary investments we are making to scale and support the growth of our communication services operation included within this segment continue to have a slight negative effect on electric segment margins. However, we believe these operations are the positive tipping point and expect improved profitability in 2018.

As of September 30, 2017, 12-month backlog for the electric power segment was a record $3.9 billion, which was an increase of 7.6% when compared to June 30, 2017, while total backlog for the segment was $6.6 billion, which is fairly consistent with levels at June of this year and in the third quarter of 2016.

Oil and gas segment revenues increased 34.7% quarter-over-quarter to $1.1 billion in 3Q '17. This increase is primarily due to continued gas transmission pipeline demand within -- with quarter-over-quarter revenue increases, driven largely from smaller projects, offset slightly by lower contributions from larger projects due to the timing of awards.

In addition, incremental revenues from acquisitions contributed approximately $80 million in the quarter. Operating margin decreased to 5.3% in 3Q '17 from 8% in 3Q '16.

In addition to the storm impacts discussed earlier, margins were impacted by the overall decrease in revenues from larger pipeline projects, which typically offer higher-margin opportunities. Also, adverse weather conditions on certain Canadian gas transmission projects created delays and other production issues resulting in higher-than-expected costs. These projects were substantially complete as of September 30, 2017, and change orders related to certain of these impacts are being pursued but have not yet been recorded.

As of September 30, 2017, 12-month backlog for the oil and gas segment was $2.3 billion and total backlog for the segment was $3.9 billion, both of which represent significant increases when compared to June 30, 2017.

As discussed in today's earnings release, we have now included the Atlantic Coast Pipeline project in backlog largely as a result of the FERC approval of the project as well as better visibility to the scope of work we will be performing.

In addition, the incremental backlog associated with the acquisition of Stronghold contributed roughly $300 million of 12-month backlog and $700 million to total backlog. A large portion of their work is associated with evergreen MSA arrangements, and our backlog includes estimates based on 12-month run rates for this type of maintenance work.

Consolidated 12-month backlog at September 30, 2017, is approximately $6.2 billion, which after excluding the backlog acquired during the quarter, still remains at a record level, which is a great start towards achieving Duke's earlier in the year comments about opportunity for new record overall backlog. Also, with his earlier discussion, we continue to see the opportunity for additional awards in both segments.

Corporate and non-allocated costs increased $13.6 million in the third quarter of 2017 as compared to 3Q '16 due to $9.6 million of higher compensation costs, due largely to the factors impacting consolidated SG&A as well as $3.3 million in higher acquisition and integration costs.

For the third quarter of 2017, cash flows provided by operating activities of continuing operations were approximately $173.7 million and net capital expenditures were approximately $58.9 million, resulting in $114.8 million of free cash flow. This compares to negative free cash flow of $97.6 million for the third quarter of 2016.

Free cash flow for the third quarter of last year was negatively impacted by higher working capital requirements related to the number and size of oil and gas infrastructure projects that moved into full construction that quarter.

However, for the third quarter of 2017, we had a smaller number of these projects and most were winding down, reducing the cash flow demand.

The third quarter of 2017 was negatively impacted by high unbilled balances associated with the storm work late in the quarter as much of the work had not been built by quarter-end.

DSOs were 79 days at September 30, 2017, compared to 74 days at December 31, 2016, and 79 days at the end of last year's third quarter. This increase from year-end was primarily due to more favorable billing terms for certain projects ongoing at the end of the year as compared to the projects ongoing in 2017.

At September 30, 2017, we had $91.5 million in cash. We had $392.8 million in letters of credit and bank guarantees outstanding, and we had $757.5 million of borrowings outstanding under our credit facility, leaving us with $751.2 million in total liquidity as of September 30, 2017.

During the quarter of 2017, we closed the Stronghold acquisition and increased borrowings on our credit facility to fund the $347.5 million of net cash used for the acquisition. As expected, the third quarter had stronger free cash flow than the previous 6 months of the year. And although it is difficult for us to forecast overall free cash flow, we continue to expect the fourth quarter will be our strongest free cash flow quarter of the year.

FX is now expected to run between $240 million and $250 million for the year, which is up slightly from our previous annual guidance due to opportunistic realignment of certain equipment from rented or leased to owned assets.

Turning to our guidance. Our full year 2017 consolidated revenue is expected to range between $9.25 billion and $9.35 billion. Our range of revenue guidance contemplates electric power revenues with year-over-year growth approaching 15% and oil and gas revenues potentially exceeding 35% growth year-over-year.

We see operating margins for the electric power segment at around 10% for the fourth quarter, resulting in annual margins still in the 9% to 9.5% range for 2017.

In addition, we see fourth quarter operating margins for the oil and gas segment to now be around 2%, resulting in annual operating margins slightly below 5% for 2017, both lower in large part as a result of the margin declines from the previously discussed storm impacts.

We anticipate interest expense for the year to be approximately $18 million to $19 million. Our forecast for the year for other expense is now approximately $7 million to $8 million, which includes other expense related to the deferral of a portion of the construction profit on the Fort McMurray West transmission project.

Noncontrolling interest deductions should be between $1.5 million to $2.5 million for the year. We anticipate GAAP diluted earnings per share from continuing operations attributable to common stock for the year to be between $1.58 and $1.68 and anticipate non-GAAP adjusted diluted earnings per share to be between $1.90 and $2.

Our forecasted non-GAAP measures are estimated on a basis similar to the calculations of historical adjusted diluted earnings per share presented in our release.

Our full year 2017 guidance reflects foreign exchange rates comparable to the first 9 months of 2017. Fluctuations in foreign exchange rates could make comparisons to prior periods difficult and could cause actual financial results to differ from guidance.

Shortly after this conference call, we'll post a summary of our guidance expectations in the Investors & Media section of our website.

We do believe our net results for the quarter weathered the storms and reflected diversity of our operations. In addition, we believe our expected results for the year continue to reflect our opportunities for growth and our commitment to maintaining our strong balance sheet and financial flexibility.

We continue our bottoms-up assessment of our 2018 opportunities and feel we are well positioned financially for continued growth and the ability to execute on strategic initiatives.

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 with 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, so industrial services looks like, you mentioned, it's going to cost you about $0.12 swing this year in the second half of the year because of the hurricanes. You mentioned that some of the business may come back in 2018. So can you talk about the confidence that, that business does come back, that it's not just lost (inaudible) in hurricane in the second half of the year? Then can you talk about overall emergency restoration work? Does it start to sort of significantly outweigh the hurricane issues that you've had, especially (inaudible)? How much longevity is there for hurricane restoration work this cycle?

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

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Yes. First, let me take the industrial question and talk a little bit about that. I think what you had this year, you had a flood along with some wind events. So Harvey, you had wind events in the Corpus area, Gulf Coast, and then you also had big floods in Houston all along the refineries. So our industrial business, when we look at it, we had a pretty nice fall turnaround season ahead of us. We were preparing for that. And we had a flood event. And so we can't control the weather. It happened and it affected not only the third quarter. It will affect the fourth quarter in that business and the guidance we have given. So that being said, I think some of that differs into 2018. We stand behind our guidance that we've given in 2018. We think the company is in great shape. We couldn't be prouder of it, of the management team and what we're doing there and the strategy we have behind it long term, and that includes 2018. So I think some of that can get deferred. It's early -- too early to say, but we're having great conversations with our customers and our customer base on the industrial segment. As far as the restoration business goes, it was -- if you look at it on the electric segment alone, it's -- we said it was $130 million in the quarter, so it's less than 5%, 10% of the business in the quarter. So when you look at it, yes, it's good and we're doing good things. And mainly, what we're doing is we're helping our customers get lights back on and making sure that there's no loss of life. And I'm real proud of the way the guys performed and what we did as a company and as an industry. It really, really was world-class restoration here. As we look forward into the fourth quarter, there's some pickup that's still ongoing with our customers as far as cleanups, some things that were done in the storm. You go back and you fix things that you may not have done up to spec. So those things will all be getting taken care of as we move forward in the fourth quarter. As we sit today, I think, first and foremost, we were supporting our US-based customers. And the opportunities in the islands and other places, we're evaluating those daily.

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

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And Duke, just as a follow-up, obviously, a fair amount of noise in your oil and gas margin in 3Q given the storm issues and the weather impacts in Canada. How do we think about the underlying margin in that business and the potential for it to get back closer to your long-term range of 9% to 12% in '18, especially as I would imagine utilization is going to be pretty good in time it gets better next year. So how do we think about that?

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

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Yes. When we look at our oil and gas segment, the underlying business, the core business is there with our distribution business, our industrial business now. I think we've set up really nicely to grow that, to drive that business. And it's overlaid with our project-based business. What we're seeing is our projects are coming off. The work that we have in Canada, we'll be prudent about how we guide to that. We've grown our -- organically grown a lot of that base business now, and I think we'll start getting scale out of it as we move forward into 2018. So I like where we're at. I understand where the margins are. We're looking at them. We see them as well. So we're not happy with where they're at, and we're working towards next year's guidance to be back in the more normalcy of what we've said in the past. I think as we get into that project-based business into 2018, which is robust on the pipeline side, we really like how it's setting up in the future years.

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Operator [6]

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Our next question comes from Noelle Dilts with Stifel.

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

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So just starting out on the oil and gas side, I guess kind of a multipart question here. First, you talked about seeing a number of project opportunities in the market. Can you give us a feel for -- are you still seeing the preponderance of those projects are gas? And sort of give us a sense of where they're coming from on a regional basis? And then, we're obviously watching a lot of projects. Quite a few of them are in the Permian. I know historically, folks have kind of viewed Quanta as the Union operation, but I think you've been adding to your non-Union capabilities. Can you just talk to us about your competitiveness on some of these projects in what would traditionally be non-Union territories?

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

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Thanks, Noelle. Yes, as far as the large project goes, we are in active discussions with customers on multiple projects. We put one in our backlog now. I believe we'll be full on our -- in North America, at least in the Lower 48 as we look into 2018, 2019. I don't think there's any issue there. It's a robust environment. It's good. And you guys follow the larger projects. There's a nice list out there. We're around them all when we look at them. And so we're talking to customers about the best way that Quanta can move forward and provide support and solutions to them as we move forward to those bigger builds. As far as the Permian, we've -- we have made investments there. We're able to operate in that environment. So as we see those jobs, as that moves forward into 2019, 2018, we're on those projects as well. We're also seeing signs of the Midstream business come back as you start to move gas into Mexico. That business is getting better both in Canada and in the Lower 48. So things are shaping up and strengthening both on the midstream side, our Canadian midstream side as well as our large diameter pipe. So we really like how '18 is shaping up.

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

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Great. And then just shifting over to transmission. I think when you kind of look at commentary out of peers and equipment suppliers into this space, you've kind of consistently hear that you're seeing strength in the small to medium market -- you guys talked about that today -- but that there are some large opportunities on the horizon. Are you thinking about some of those opportunities? I know you've got Wind Catcher. But contributing to the back half of '18 or are you thinking they're more 2019 opportunities at this point?

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

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Yes. I think we're going to grow the business nicely in 2018 on the electric side. Our underlying business, as we've talked about, about 85% of it is that base-type business on the electric side. It's probably a little more than that at this point. And we're seeing strength in that with these capital projects and capital programs with our customers. As far as those bigger projects, there's some of those bigger projects that we're looking at, but we're not anticipating that being a 2018 event. And we don't -- while it's great to have them and it's great to be able to look at that work and think about it, it's not something that we're anticipating in our guidance at this point.

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Operator [11]

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Our next question comes from Tahira Afzal with KeyBanc Capital Markets.

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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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So I guess I was very curious to see this hybrid wind-solar-battery power plant announcement that you made. I know maybe starting off on the (inaudible) side, I would love to get an idea of the opportunities that you see there, what business in terms of size. And then on the telecom side, obviously, some good bookings coming through. Is -- are the bookings you're seeing a little faster than you thought or are they tracking as you thought?

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

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Good question, Tahira. As far as the battery project in Australia, I think for us, it's just a matter of we get a lot of questions about what we're doing in Australia and our ability to grow our service lines. As you remember, Australia started out as a gas-only operation and now we've taken that, we built our electric business there as well as have the capabilities on renewables from the Lower 48 there. So it was a nice project. It was a battery, wind, solar project. And so we're able to put a lot of things together and build something unique in Australia on an EPC basis. So we're proud of that. We're proud of our ability to deliver in Australia and that management team there. So we wanted to highlight that a little bit about some of the breadth we have in our regional offices. As far as telecom, I think what I would say there, we're 6 months behind. We stated that before. We're seeing really good bookings. We're starting to execute work, engineering work now. I think we're at a tipping point there, where you'll start to see us incrementally every quarter get better in that business. And we had some -- a little bit of delay in Latin America on some projects, and that's now starting to flush out. And all that's starting to come together, so I really like where we're at. We'll get some growth next year. We'll continue to book backlog. We've had good conversations with our customers in that business. They like us in the business. We know it very well. It's an organic growth story. So when we're growing organically in any of these businesses, it does drag us on our earnings profiles but it's the right long-term answer for Quanta and it's the best use of our capital. So it's better for us to grow it organically on some of these service lines, and that's what we're doing here and that's what we've done somewhat on our gas side as well. So I'm really pleased with where we're at, albeit 6 months behind.

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Tahira Afzal, KeyBanc Capital Markets Inc., Research Division - MD, Associate Director of Equity Research, and Equity Research Analyst [14]

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Got it. Okay. And just as a follow-up, first of all, congratulations on Labrador Island. Obviously, I got to see firsthand what a complex project it is, so congrats over there. I did notice that (inaudible) about some projects but the execution wasn't that good. Would you say that the nuances you saw there are within the normal range? Or was anything structural we should be focusing on?

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [15]

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No. I think as far as what Derrick was commenting on in the project in the Midwest, it was primarily around access and our ability to get to the right-of-way. It wasn't traditionally the work -- actually, the execution of the work, which it's something that as we look at these projects, it's getting hard to get access. It was 2 years ago when we started this. And as we look at them today, we look at them a little different. We learned some stuff there on access, so we got a lot smarter as we move forward. It's not something that we typically have issues with on our electric side -- electric segment. We pride ourselves on execution, but we thought we should highlight it in the quarter and just show you the strength of the underlying business on the rest of the work. It was a one-off project. I don't anticipate us having issues on that side of the business. Yes, we're very proud of that team at Labrador Island. That was a tough, remote project. I don't think as far as I'm concerned, nobody in the world could do it and certainly not underbudget and on time. So we're proud of that.

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Operator [16]

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Our next question comes from Jamie Cook with Crédit Suisse.

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [17]

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I guess, Duke, first, this longer-term question and then the second, follow-ups. Can you just talk, based on what you're seeing today, the pipeline of opportunity, how you're sort of thinking about your longer-term goals of the $10 billion revenue target? And how you would define medium term today based on the bookings that you've had? I mean, is that more of a 3-year, 5-year? And then sort of, do you feel more comfortable with the top line or the margin side of that business? And then my second question, just a follow-up on Tahira's, the electric power problem project, the $9.4 million loss, I know you said it's 80% complete. How much revenue is left associated with that? Because I'm just trying to figure out the drag on margins. And then can you quantify -- you talked about on the oil and gas business the weather issues hurting -- creating delays and stuff. How much of an impact was that on your oil and gas margins? Because even adjusting for Stronghold, your margins looked -- in the hurricane, your margins looked a little light on oil and gas.

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [18]

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Yes, thanks, Jamie. A few questions there. So the $10 billion top line, if we add Stronghold and what we said on the Stronghold acquisition, it was about a $570 million to $600 million type run rate on a go-forward basis. Given what we've done this year, I think our $10 billion number is reachable in the short term. Much...

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Jamie Lyn Cook, Crédit Suisse AG, Research Division - MD, Sector Head of United States Capital Goods Research, and Analyst [19]

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How do you define short term? 3, 2?

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

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Let's build it from the bottom up and we'll start giving guidance. But it's sort of in the 3 to below 3 in my mind. We haven't built it up yet. But obviously, if you start adding it up, you say we'd grow electric, you say we can grow gas, and then you do the math, you'll see where I'm at if you add the 570 in for a full year run rate. So I would -- we're growing the telecom business as well. So I like where we're at. I like what I said. I think it's shorter rather than longer. But let me build up 2018 from the bottom up and we'll get there, give you some more guidance on that. As far as the margins go in the gas side, I'll let Derrick take that question. The $9.4 million on the electric side -- we're substantially complete with the issues that we were having on the below grade. We're into the kind of the wire, the clip and the stuff that does not cause issues there. We're working with the customer on some changes. So that -- so I think in general, there's no really issues on a go-forward basis on the job. We're 80-plus percent complete, probably $15 million left, or something like that. I'm not worried about that one. Not worried about that one. And as far as the qualitative comments on the weather on our gas segment, I think you're right. We were a little light in places. Some of the spring breakup in Canada was pulling down some of those margins in our Canadian operations. And so -- and we were also starting other operations in Canada on the midstream side, which I like it long term. So it was a drag there in the quarter. And I'll let Derrick comment on some of the other things you asked.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [21]

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Yes. I think Duke basically handled it. I mean, from a revenue perspective, the idea being is obviously we have this year, there's quite a bit of storm work in it, probably $100 million more than normal. But it doesn't have the full annual effect of Stronghold in it. So when you think about the midpoint of our guidance and you factor both of those equations into it, you see a number next year that when you take into consideration our opportunities for double-digit growth that we have spoken about, we can see how modeling can get you into a number that's up there. We have yet to put out exactly how we're going to do it from a bottoms-up perspective, but we can understand how the scenarios and the modeling can start to look closer to the $10 billion number that you're talking about. And then Duke has already covered it earlier in the comments ultimately about oil and gas. The largest contributor that we've spoken to regularly is the aspect of large diameter pipe. We have a pretty substantial complement of large diameter pipe opportunity for 2018, much of which is already in our backlog. And to the extent that we execute to that, not only from a contingency perspective, but the utilization of assets, those are the types of things that have always told -- in our mind modeled out the largest overall increase in margin potential. I think it's too soon for us to get to a spot of saying what our margin range will be, but I think we have every bit of expectation they will exceed 2017.

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

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And one more thing, Jamie, I think we asked about the gas margins in general, whether we're trying to grow the top or bottom. I think we're always trying to grow the bottom line margins on that business. That's one piece of business that we've invested a lot in that base core business, so it's not so project-concentric. And that -- this year especially, we've really almost doubled our employee count on our base type business and also our investment in our industrial segment on the gas side. It's going to pay dividends next year and in the following years out. So when the projects are not there, we have a good, strong base business. It does impact the margins this year. I don't think that will be the case next year as we move forward, so we'll see more steady margins, plus we'll layer on some projects. I really like how the business is setting up in a multiyear macro market here.

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Operator [23]

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Our next question comes from Matt Duncan of Stephens Inc.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [24]

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So first thing I want to talk about, and look, I get that you're not to the point where you're ready to give 2018 guidance yet and Jamie was just kind of hitting on this, just sort of the time frame around the $10 billion in revenue. But if we look at the comments you're making about each segment individually and the growth potential that you're seeing into next year, based on the revenue you're putting up this year, it seems like maybe you could achieve that revenue number as early as next year. So I just want to make sure we're not misunderstanding the way you're framing up the opportunity for both segments. Is it fair to say you can grow both at least mid-single digits or better in the next year?

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

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I think it's a fair comment. So we see the same thing you see and we like the macro markets and we like what we're doing as far as executing within the business segments. I think in general, we're working on our gas margins. And so that's something we understand and we know where we're at there and we continue to work on it.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [26]

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Okay. And then in the oil and gas segment, just a couple of things. On the pipeline side, if you could comment just based on what you're seeing from a market perspective and sort of translate that to your business. How many large diameter spreads do you think you could have working next year versus this year? And then on Stronghold, you gave us an updated view on what it's going to do this year. Is that lower view all due to the storms? Would you have been able to hit the numbers that you laid out when you bought it if not for the hurricane impacts so that, that business is still kind of on track for what you laid out for us for next year?

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [27]

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Yes. We're in constant contact with our customers. And I think in general, in Stronghold, we like where we're at. We think we're right on track other than the storm impacts. I believe we would have hit -- it's hard to say. I mean, it's certainly something that you don't want to start off with, with a hurricane event on something on a business line. And it happened. We can't control it, but it happened. We dug into it. We looked at it. We see a strong market going forward and we stand by our guidance in '18 and beyond. We really like that business. As far as us being at capacity, the markets are there. The overall macro markets are there for us to be at capacity in the Lower 48. We're not going to take undue risk or things of that nature. And that being said, we could run 8 spreads, 10 spreads or something in North America when we look into next year, but we'll be smart about it.

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Charles Matthew Duncan, Stephens Inc., Research Division - MD [28]

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And Duke, haw many did you run this year just so we get a comparison?

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [29]

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Yes, I was cut up. It's a different build next year just where it's at regionally, so it's not really a fair -- we had some smaller projects in different parts of the world. So it's difficult -- it's not a comparable year. So I would just -- I would say next year is more robust than this year for sure.

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Operator [30]

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Our next question comes from Steven Fisher with UBS.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [31]

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(inaudible) would have been in the fourth quarter -- can you hear me?

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

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You broke up. Can you repeat, please?

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [33]

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Sure. Just wondering what -- if you can give us what the oil and gas margin would have been in the fourth quarter ex the storm impact, if that would have been in the sort of 5% to 6% range? And can you talk about the timing of mix of larger versus smaller pipelines and how that plays out in the oil and gas margins over the next few quarters?

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Derrick A. Jensen, Quanta Services, Inc. - CFO [34]

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Yes, Steve. Ex the storm impact as far as our current view, I mean, it'd be up 100, 130 basis points or something like that. Now versus our original views, obviously, it would have been higher because now it's burdened with the impact of Stronghold. But ex-storm right now, you can probably look at something that's going to be at least 100 basis points higher than what you're currently looking at. As it relates to how the quarters themselves play out, I think it's still a little too soon for us to answer that. We -- as we go through, we're going to do the bottoms-up approach like we always do. And for us, seeing how December and January come into play are really pretty important to looking at how we think the 2018 quarters themselves will play. As I stand here, I would have a tendency to tell you that I think the seasonality effects would be generally the same. Still lower in the first, rising in the second, higher in the third and dropping in the fourth. I don't believe I'll see something materially different from that, but at the levels of that right now, I need to see better visibility into that first quarter before I can answer with specificity.

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [35]

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Qualitatively, some of the work is in the mountains. So when you look at that in the big pipe piece of it, we got to be careful about how we look at that and when we get spreads kind of at capacity. So we'll be smart about that. And I would say, Derrick is right. There will be some seasonality in that business. But if you look at what's happening in Canada, some of our midstream business, our Canadian midstream business is starting to come back and some things that can impact the first quarter in a positive way as well. So it's hard to say. Like Derrick said, we needed to do a bottoms-up approach and come back and give you some seasonality. But as far as the overall year and what it's shaping up, we like it.

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Steven Fisher, UBS Investment Bank, Research Division - Executive Director and Senior Analyst [36]

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Okay, I'll follow-up offline on the 3% margin ex the storm issues. So I want to ask about cash flow. With it running more positive and expected to be strongest in Q4, how are you thinking about share buyback at this point if you have the $300 million authorization, I think?

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

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Yes. As we stand here today, we have not purchased any stock under the plan. We continue to be opportunistic with it. It's all about how the M&A market investment side of the equation and stock buybacks mix. So as we go forward, it will still be part of the overall. And it's still our intention to look at that as an opportunistic deployment of capital.

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Operator [38]

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Our next question comes from Chad Dillard with Deutsche Bank.

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Chad Dillard, Deutsche Bank AG, Research Division - Research Associate [39]

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So Derrick, I think in your prepared remarks, you talked about the -- having some communications cost absorption. I was hoping you can quantify that. And then also, how much coms work is currently in backlog now? And how should we think about margins relative to both transmission [side] and coverage and then maybe you can speak to how you see this work ramping up as we move through 2018.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [40]

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Yes, for the quarter, communications, I would say that roughly it's probably 20 basis points dilutive to the electric power group overall right now. The project work is profitable, but it's just an aspect of how the ramp-up of the strategic side of the equation is putting pressure on it. But the project work itself is profitable. Communications backlog, when you consider Latin America, Canada and I would throw in there the post September 30 type of awards, I mean, that number is going to be in excess of $600 million. I mean, it's a growing number for certain. And as we go forward, I think Duke has commented about that he sees additional opportunities for awards comparable to what you've seen both in the second quarter and the third quarter as we move forward.

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Chad Dillard, Deutsche Bank AG, Research Division - Research Associate [41]

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Great. And then moving over to storm work. How much storm work did you have year-to-date and what's your full year expectation for 2017? And then on the Australian solar project, can you just provide a little bit more detail on its price? Did you guys take any construction risk? And is this project design off-the-shelf? Or is it -- I'm just trying to understand some of the risks associated with this project.

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Derrick A. Jensen, Quanta Services, Inc. - CFO [42]

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About $200 million of storm work to date. I would tell you that we're expecting right now fourth quarter to come in, let's say, about $25 million. So we think the year will end up about $225 million. Some of the work that's coming in, in the fourth quarter would not be characterized as storm work. When Duke alluded to additional work coming through, a lot of that will drift over and be traditional maintenance work versus storm work. So we'll probably look at ending the year about $225 million. Generally speaking, the project down -- that combined project is an EPC project. It's lump-sum. It's more of the traditional risk that you would see associated with that type of work but nothing really unique or unusual.

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [43]

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Large material component. I'm not too concerned with that -- no output risk or anything like that. I'm not too concerned with that project.

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Operator [44]

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Our next question comes from Andrew Wittmann with Robert W. Baird & Co.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [45]

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I guess I wanted to ask on Puerto Rico. And as you have been looking at this, what do you need to see out of that type of work to get you comfortable with going in there? Is it advanced payments? Is it credit worthiness of the customer? Maybe you can just talk about some of the factors that you need to see line up for you guys to have a role there.

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [46]

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Yes. I think we're known for boots on the ground construction. We had 5,000 folks deployed in the U.S. and picked it up quite nicely. For us to get involved in an event, which I think first of all, concerned with human life and what's going on there, so that is concerning to us and we're certainly willing to help and support. As we look at it, we need to get good visibility from whoever is going to decide to lead that effort. We're obviously in contact with both the utility and the government. So we'll look at it. But first and foremost, we have customers here that -- and the demands are high for us to finish capital budgets. And there's a large storm in the Northeast as we sit today that we're supporting from traditional customers from earlier on this week. So we can't -- we have to watch kind of what we do and how we support other places and those efforts. But we're happy to do that, and we are in discussions all the time about how to support those islands as well as Puerto Rico. But as far as what happened in the press, in the media and everything that was said on the contracts down there, we were not involved.

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Andrew John Wittmann, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [47]

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Okay, great. And then just a cleanup question here. At the outset of the call, you guys mentioned there's a couple of large projects that you've won and talked about publicly that are not in the backlog. One of them is Wind Catcher. I was wondering if you can remind us what the other ones are.

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

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The other one is Northern Pass, and we're around the edges on many more. So various stages of that.

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Operator [49]

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Our next question comes from Adam Thalhimer with 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 on Stronghold. Do you have any feel for the spring turnaround season yet and how that business might bounce back in Q1 of next year?

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

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Yes, I think from our standpoint, we see a robust turnaround season in the spring. We're talking to our clients and we stand behind our guidance there, the $570 million to $600 million next year. We're in constant discussions in the things that we do on the industrial side. We're happy, happy with the business, happy with where we're going in 2018. Constant communications over there, and I'm pleased with what's going on. It's all storm related here. And some of that deferred, some of that just kind of pushed into next year or the years beyond. But I think from our standpoint, we see opportunity into 2018 on top of what we've already said.

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

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Okay. And then the oil and gas backlog, you're already at a record. You referenced continued growth. I'm just curious if you can give us any kind of a sense for what do you think the peak potential backlog is for that segment based on your capacity?

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

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Yes. I mean, as far as backlog peak, I'm not certain. We were at -- we can -- EPC, we can do a lot of things over there that allow us to build backlog relatively quickly. We're also building our base business, and it's just difficult to tell you how long the backlog goes out, beyond 12 backlog versus the 12-month backlog, but it's a robust market on the large diameter side as well as on the other underlying businesses. We've invested a bunch in that. We're really focusing on bringing up our margin profiles and executing on the work that's ahead of us in the next 12 months and beyond.

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Operator [54]

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

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [55]

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Duke, on your -- based off your experience in the past with some of these events like we've seen this quarter, as customers in the South sort of digest everything that happened and kind of calibrate where they need to spend money in the next 12 months, is that something that can impact bid schedules on these larger transmission programs? Maybe there's an emphasis on other areas of the asset base. Or does it actually kind of create more urgency to move these jobs forward?

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [56]

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I would just say in general, as a large event in the industry itself, what was done from a hardening standpoint and a modernization standpoint of the grid was evident in the way it got picked up in the event. And so that being said, I think the willingness for the regulators to invest in their systems for the public is definitely there. It's a proof-of-concept. It -- our customers got out in front of some of that. And it really paid dividends in the storm. So I think you'll continue to see more investment as we move forward in the modernization of the grid across the coastlines of the Eastern seaboard, even into California. So that being said, I think that part of it, you'll see long-term investments more so than we've already seen in the grid. And as far as the ongoing work and what we're seeing, we'll still continue to execute on the capital budgets. They're not backing off those as we sit here today.

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Brent Edward Thielman, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [57]

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Okay, great. And then just on the mechanics of some of this work that Stronghold was supposed to do but clearly impacted. Is that work that's still in backlog and can come out and you have to potentially re-bid next year, how does that fit into the backlog today?

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [58]

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Yes. I think in general, some of it is in backlog, some of it is -- we're with heavy discussions with customers on timing. So a lot of it has to do with timing next year and some of it is just -- it's a push further out. Again, there's opportunities. They come up daily. You'll have one go away and 3 more come back. So what we see from our customer base is the ability to get in that previous stated guidance or better.

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Operator [59]

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Thank you. There are no further questions. I'll turn it back to management for closing remarks. Thank you.

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Earl C. Austin, Quanta Services, Inc. - CEO, President, COO and Director [60]

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Yes, I'd like to thank you all for participating in our Third Quarter 2017 Conference Call. We appreciate your questions and ongoing interest in Quanta and go 'Stros [Astros]. Thanks again, guys.

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Operator [61]

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Thank you. This concludes today's conference. All parties may disconnect. Have a great day.