Kip A. Rupp - Vice President of Investor Relations James F. O'Neil - Chief Executive Officer, President and Director Derrick A. Jensen - Chief Financial Officer and Principal Accounting Officer.

Steven Fisher - UBS Investment Bank, Research Division Tahira Afzal - KeyBanc Capital Markets Inc., Research Division Noelle C. Dilts - Stifel, Nicolaus & Company, Incorporated, Research Division Adam R. Thalhimer - BB&T Capital Markets, Research Division Jerimiah Booream-Phelps - Deutsche Bank AG, Research Division Daniel J.

Mannes - Avondale Partners, LLC, Research Division Will Gabrielski - Stephens Inc., Research Division Andrew J. Wittmann - Robert W. Baird & Co. Incorporated, Research Division William D. Bremer - Maxim Group LLC, Research Division Benjamin Xiao Craig E.

Irwin - Wedbush Securities Inc., Research Division Thomas Daniels - Goldman Sachs Group Inc., Research Division.

Good day, and welcome to the Quanta Services Second Quarter 2014 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Kip Rupp. Please go ahead, sir..

Great. Thanks, Joshua, and welcome, everyone, to the Quanta Services conference call to review second quarter results. Before I turn the call over to management, I have the normal housekeeping details to run through.

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A replay of today's call will be available on Quanta's website at quantaservices.com. In addition, a telephonic recorded instant replay will be available for the next 7 days, 24 hours a day, can be accessed as set forth in the press release. Please remember the information reported on this call speaks only as of today, July 31, 2014.

And therefore, you are advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call. This conference 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 are beyond Quanta's control, and actual results may differ materially from those expressed or implied in any forward-looking statements.

Management cautions that you should not place undue reliance on Quanta's forward-looking statements, and Quanta does not undertake and disclaims any obligation to update or revise any forward-looking statements based on new information, future events or otherwise.

For additional information concerning some of the risks, uncertainties and assumptions that could affect Quanta's forward-looking statements, please refer to the company's annual report on Form 10-K for the year ended December 31, 2013, its quarterly report on Form 10-Q for the first quarter of 2014 and its other filings filed -- documents filed with the Securities and Exchange Commission, which may be obtained on Quanta's website or through the SEC's website at sec.gov.

With that, I would now like to turn the call over to Mr. Jim O'Neil, Quanta's President and CEO.

Jim?.

Thank you, Kip. Good morning, everyone, and welcome to the Quanta Services Second Quarter 2014 Earnings Conference Call. I will start the call with an operational overview 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.

Quanta produced a record second quarter revenues, operating income and earnings per share, fueled strong performance in our Oil and Gas Infrastructure segment, which reflects continuing demand for our services, safe project execution and Quanta's leadership position in the energy infrastructure marketplace.

Overall, we believe we continue to remain in the double-digit growth environment as we have significant work underway and are currently in a robust bidding and negotiating period with our customers.

Our electric power segment experienced margin pressure during the second quarter due to the challenging effects of the late breakup in Canada and northern parts of the United States, which we discussed on our first quarter earnings call. This dynamic impacted productivity primarily on electric transmission projects in those areas.

However, that dynamic is now behind us and we expect improved margin performance for our electric power segment comparable to historical results for the remainder of 2014 and remain comfortable with the midpoint of our full year 2014 diluted earnings per share guidance.

Backlog declined slightly from record levels at the end of the first quarter of this year but remains strong. We continue to have visibility into significant work that could drive backlog to new record levels.

We are currently bidding or negotiating a record dollar volume of project opportunities and are in the late stages of finalizing contract terms on several sizable agreements with customers in both the electric power and oil and gas industries that we expect to finalize in the coming months.

Our outlook for North America electric transmission spending remains positive for these reasons and is largely shaped by our conversations and strategic relationships with many of the leading utilities across North America, which gives us valuable insight into their multi-year infrastructure capital programs.

Further, according to a recent report by the C3 Group, a leading energy industry market intelligence services -- service, based on transmission spending from 2008 through 2013, 17 of the most active U.S. utilities are projected to increase their aggregate transmission spending by 81% or an 8.8% compound annual growth rate from 2014 through 2020.

PPL Electric Utilities' Northeast Pocono reliability transmission project, which we were selected for in the second quarter, is representative of this spending. For this project, we will install approximately 68 miles of new 230-kilovolt and 1 38-kilovolt overhead transmission line and related services.

In Canada, current and anticipated transmission activity remains strong due to regional increases in load demand, development of hydropower generation, reliability challenges, integration of renewables into the grid and the export of power to the U.S. and other dynamics.

In fact, forecasted transmission spending data from SNL, a leading energy industry intelligence service, indicates a robust Canada market through at least 2017.

The smaller project transmission market in North America also remains active as utilities upgrade, replace and construct new transmission lines to address reliability challenges associated with coal-fired generation retirements, integration of renewables into the grid, reliability compliance and other issues.

For example, in the second quarter, we were awarded a project to remove 39 miles of a 500-kilovolt lattice steel line and replace it with new 500-kilovolt line and lattice steel structures with a 230-kilovolt underbuilt line.

This month, we were awarded a project to reconduct approximately 50 miles of double circuit 345-kilovolt transmission line, which also includes reinforcement or replacement of transmission structures.

In response to several physical attacks on viable electric infrastructure in the United States, the North America Energy Reliability Council (sic) [North American Electric Reliability Corporation], or NERC, has proposed new reliability standards to enhance the physical security of the most critical bulk power system facilities in North America.

As these reliability standards are implemented, we see attractive opportunities to leverage our consulting, engineering and construction expertise to provide solutions to our customers.

Additionally, we are seeing further indications that utilities are positioning themselves to capitalize on transmission opportunities associated with FERC Order 1000 implementation. Several utilities have recently announced the formation of new transmission companies to pursue FERC Order 1000 transmission opportunities.

We believe FERC Order 1000 will have a positive effect on transmission investment and present opportunities for Quanta in the future. Electric distribution remains active as utilities implement system-hardening initiatives to better resist severe storm events.

Utilities are also enhancing distribution networks as distributed generation, demand response and other technologies are deployed. Recovery in new home construction in certain markets continues to drive distribution activity, and we expect these dynamics to continue for at least the next couple of years, providing additional opportunity for growth.

Demand for our Oil and Gas Infrastructure Services remains strong, driven by the development of unconventional shale plays in North America, the Canadian oil sands and coal seam gas in Australia.

Our Oil and Gas Infrastructure segment revenues grew significantly and our operating income margins expanded as compared to the second quarter of last year due to favorable end-market demand and increased contributions from mainline pipeline projects in North America and Australia.

We remain active in building midstream gathering infrastructure in the United States, shale plays and are currently working on mainline projects already in backlog. In the second quarter, we were awarded a mainline pipe project in Canada. This project will be built during the winter with the significant majority of construction occurring in 2015.

We continue to expect demand for our mainline pipe construction services to increase. Discussions and negotiations with various customers about specific mainline projects and multi-year alliance agreements continue to advance. Most of these projects and work under these potential multi-year agreements are anticipated to begin construction in 2015.

We expect to complete contract negotiations on 1 or more of these opportunities before year end. Based on our knowledge of pipeline company capital programs throughout North America, we believe demand for mainline pipe construction services could exceed industry capacity in the coming years.

We also expect Canadian mainline pipe activity to be particularly strong for several years. Quanta has been one of the leading mainline pipe construction companies in Canada for many years and we believe we are uniquely positioned for future Canadian mainline pipe opportunities.

As a leading pipeline construction company with extensive engineering capabilities, program management, manpower resources and equipment fleet, we have the scope and scale across North America to assist our customers in achieving their mainline pipe construction programs.

Coupled with our reputation, track record for safe execution and customer relationships, we are well positioned to be an important participant during this historic time for the North American oil and gas markets. While mainline pipe projects get a lot of attention, our oil and gas segment provides a wide range of infrastructure services.

Many of the projects we work on in this segment are midstream projects that are -- that typically fly below the radar of investors.

Other services we provide include the logistics of managing and transporting all of the pipe for the project from the mill to the project right-of-way, specialty trenching or directional drilling services, and building and installing compression and pumping facilities.

Further, the facilities associated with extracting, storing, processing and transporting hydrocarbons require electrical infrastructure for access to power, which offers synergies between our electric power and oil and gas infrastructure operations. That is the strength of Quanta.

We have the ability to offer comprehensive solutions to our customers, which diversifies our revenues and expands our end-market opportunities. Developing comprehensive infrastructure solutions has been a significant driver of our acquisition strategy.

I commented earlier on the contributions of our Australian expansion on mainline pipe and as we highlighted in our earnings release this morning, we have now expanded our Australian presence into the electric power infrastructure space with the acquisition of Consolidated Power Projects, or CPP.

CPP is an Australian electric engineering and construction company that offers a fully integrated service offering for high-voltage electric assets. We continue to view the Australian market as a significant growth opportunity. And finally, our Fiber Optic Licensing operation continues to perform well.

Demand for our dark fiber network remains solid, and our lit services rollout continues to progress in our Northeast markets. We are engaging current and potential new customers with the broad platform of private network communication solutions that we offer.

And we see attractive growth opportunities over the next several years as our lit service offering gains some traction in 2015 and beyond. In summary, during the first half of this year, we executed well and met the financial expectations we established.

End-market drivers remain firmly in place and demand for our specialty infrastructure services is strong. We have visibility into significant new project awards this year that could drive higher levels of backlog. We expect our financial performance for the second half of this year to improve and be stronger than the first half.

We continue to see opportunity for double-digit growth and our multi-year outlook remains positive. As electric power and oil and gas infrastructure projects become larger and more complex, more customers are turning to Quanta to provide comprehensive infrastructure solutions.

We believe we have the scope and scale, technology, expertise, safety programs and track record that differentiate us in the markets we serve. We continue to execute on strategies that position Quanta for both near- and long-term growth. I will now turn the call over to Derrick Jensen, our CFO, for his financial review of the second quarter.

Derrick?.

Thanks, Jim, and good morning, everyone. Today, we announced revenues of $1.86 billion for the second quarter of 2014 compared to $1.47 billion in the prior year second quarter, reflecting an increase of 26.5% in quarter-over-quarter revenues.

Net income attributable to common stock for the quarter was $81.1 million or $0.37 per diluted share as compared to $70.2 million or $0.33 per diluted share in the second quarter of last year.

Included in the second quarter of 2013 was noncash stock-based compensation expense of approximately $4.3 million or $0.01 per diluted share related to the retirement of Quanta's former Chairman effective May 23, 2013.

Adjusted diluted earnings per share as presented in today's press release was $0.43 for the second quarter of 2014 as compared to adjusted diluted earnings per share of $0.38 for the second quarter of 2013.

The increase in consolidated revenues in the second quarter of 2014 as compared to the same quarter last year was primarily due to an 18.4% increase in revenues from our electric infrastructure services segment and 51.7% increase in revenues from our Oil and Gas Infrastructure Services segment.

Revenues contributed during the quarter from companies acquired subsequent to June 30 of last year are estimated at around $200 million, which indicates that organic growth in consolidated revenues was in the double-digit range of approximately 10% to 11%.

Our consolidated gross margin was 15.1% in the second quarter of 2014 as compared to 16.4% in the second quarter of 2013. As Jim briefly mentioned in his commentary, the weather aspects of the first quarter 2014 did carry over and impact our performance in the second quarter of 2014, primarily in Canada and northern regions of the U.S.

as we dealt with the late breakup as these areas thawed from a very cold first quarter as well as other very wet conditions. This impacted our overall productivity for the quarter and therefore reduced profitability of certain projects, primarily in the electric power segment.

Selling, general and administrative expenses as presented in this quarter's press release were $139.4 million in the second quarter of 2014, reflecting an increase of $20.4 million as compared to last year's second quarter.

This increase is primarily attributable to $15 million in incremental G&A costs associated with companies acquired since the second quarter of 2013 and $5.5 million in higher professional fees primarily associated with ongoing legal matters.

As a percentage of revenues, selling, general and administrative expenses decreased to 7.5% in the second quarter of 2014 from 8.1% in the second quarter of 2013.

Primarily due to the impact of the higher revenues described above, the impact of lower cost structures of certain other companies acquired after the second quarter of last year, as well as lower noncash stock-based compensation expense due to the previously described impact of the $4.3 million expense included in the second quarter of 2013.

Our consolidated operating margin before amortization expense was 7.6% for 2Q '14 compared to 8.3% consolidated operating margin in the second quarter of '13.

Amortization of intangible assets increased to $8.6 million in the second quarter of 2014 from $5.1 million in 2Q '13 primarily due to amortization of intangible assets associated with acquisitions that have closed since the second quarter of last year.

To further discuss our segment results, electric power revenues were $1.24 billion, reflecting an increase of $192.8 million quarter-over-quarter or approximately 18.4%.

Revenues during the quarter were positively impacted by increased revenues from electric power transmission, distribution and power generation projects, which resulted primarily from increased capital spending by our customers and an estimated $50 million in revenues by acquired companies.

Operating margin in the electric power segment decreased to 9% in the second quarter of 2014 as compared to 11.5% in last year's second quarter, primarily due to the effects of the late winter breakup and other wet weather effects described in my earlier comments.

Additionally, the decrease in quarter-over-quarter gross margin was attributable to the higher margins earned on certain power generation projects that were completed during the second quarter of 2013 as compared to the second quarter of 2014.

12-month and total backlog for the electric power segment increased significantly when compared to the second quarter of 2013 primarily due to new awards and, to a lesser extent, from acquired companies.

12-month and total backlog decreased slightly from year end due to period-over-period backlog having some lumpiness associated with the timing of awards and contract burn as discussed in prior quarters.

Oil and gas segment revenues increased quarter-over-quarter by 51.7% to $585.4 million in 2Q '14 as a result of revenue contributions of an estimated $150 million from companies acquired since the quarter, second quarter of 2013, as well as revenue increases due to increased capital spending by our customers.

Operating income for the oil and gas segment as a percentage of revenues increased to 9.5% in 2Q '14 from 7.2% in 2Q '13. This increase was predominantly due to strong execution on certain mainline pipe projects in both the U.S.

and Australia and contingencies associated with these projects as well as better fixed-cost absorption due to higher revenues. Total backlog for the Oil and Gas Infrastructure Services segment at the end of the second quarter of 2014 was consistent with the amounts reported at year end.

However, 12-month and beyond 12-month backlog were impacted by the change in anticipated start date of a project to beyond the 12-month backlog period. Comparable changes occurred between the first and second quarter of 2014.

Our Fiber Optic Licensing and other segment revenues were down $2 million or 4.9% to $40 million in 2Q '14 as compared to $42.1 million in 2Q '13 primarily due to lower levels of ancillary telecommunication service revenues.

Operating margin was 35.4% in 2Q '14 as compared to 34% in 2Q '13 primarily due to lower network maintenance costs in the quarter.

Corporate and unallocated costs increased $2.8 million in the second quarter of 2014 as compared to 2Q '13 primarily as a result of a $3.5 million increase in amortization expense related to 2014 and 2013 acquisitions and a $2.3 million increase in consulting and other business development fees, partially offset by lower noncash stock-based compensation costs due to the higher stock-based compensation expense in last year's second quarter that I spoke of earlier.

EBITA for the second quarter of 2014 was $136.4 million or 7.3% of revenues compared to $117.4 million or 8% of revenues for the second quarter of 2013. Adjusted EBITDA was $186 million or 10% of revenues for the second quarter of 2014 compared to $163.6 million or 11.1% of revenues for the second quarter of 2013.

The calculation of EBITA, EBITDA and adjusted EBITDA, all non-GAAP measures, and the definitions of these and day sales outstanding, or DSOs, can be found in the Investors and Media section of our website at quantaservices.com.

For the second quarter of 2014, cash flow provided by operations was approximately $33 million and net capital expenditures were approximately $71 million resulting in approximately $39 million of negative free cash flow as compared to free cash flow of approximately $16 million for the second quarter of 2013.

The decline in free cash flow was primarily driven by prepayments related to the renewal and extension of certain of our insurance policies, which have historically occurred during the third quarter, as well as the payment of the liability associated with the arbitration decision in the first quarter of 2014 as discussed in today's earnings release.

DSOs were 78 days at June 30, 2014, compared to 72 days at December 31, 2013, and 83 days as of the second quarter of last year, which is adjusted for the reclass of the Sunrise change order.

Impacting our financing cash flows during the second quarter of 2014 was our use of approximately $45 million in cash for the purchase of approximately 1.3 million shares of our common stock under our 3-year $500 million stock repurchase program, which we announced late last year.

At June 30, 2014, we had about $244 million in letters of credit and bank guarantees outstanding primarily to secure our insurance program, and we had no borrowings outstanding under our credit facility. In addition, at the end of the quarter, we had approximately $189 million in cash with approximately $40 million in U.S.

funds and $149 million relating to our foreign operations. Considering our cash on hand and availability under our credit facility, we had nearly $1.27 billion in total liquidity as of June 30, 2014.

Concerning our outlook for 2014, we expect revenues for the third quarter of 2014 to range between $2.0 billion and $2.1 billion and diluted earnings per share to be $0.52 to $0.54 on a GAAP basis.

These estimates compare to revenues of $1.65 billion and GAAP diluted earnings per share of 43% -- $0.43 in the third quarter of 2013, which includes the benefit of $0.03 per share from the release of tax contingencies.

Our GAAP EPS forecast for the third quarter of 2014 includes an estimate of $8.5 million for noncash stock-based compensation expense and $9.1 million for amortization expense.

Excluding these expenses, our non-GAAP adjusted diluted earnings per share for the third quarter of 2014 is expected to be $0.57 to $0.59, and compares to our non-GAAP adjusted diluted earnings per share of $0.46 in the third quarter of 2013. We expect revenues for the full year of 2014 to range between $7.6 billion and $7.8 billion.

We expect diluted earnings per share to be between $1.58 and $1.68 on a GAAP basis. Our GAAP EPS forecast for 2014 includes an estimate of $37.6 million for noncash stock-based compensation expense and $34.9 million of amortization expense. Our expectations for non-GAAP adjusted diluted earnings per share for the year of 2014 are between $1.90 and $2.

This compares to $1.71 in 2013. Our forecast of non-GAAP measures are estimated on a basis similar to the calculations of historical adjusted diluted earnings per share presented in our release.

We are currently forecasting net income attributable to noncontrolling interests to be approximately $4 million to $5 million in the third quarter of 2014 and $15 million to $16 million for the year.

For additional guidance, we're currently projecting our GAAP tax rate to be between 34.5% and 35.5% for 2014 and our diluted share count to be about 219.2 million shares. We expect CapEx for all of 2014 to be approximately $300 million to $325 million, which includes CapEx for our fiber licensing and other segment of about $50 million to $60 million.

This compares to CapEx for all of 2013 of $264 million. Overall, our capital priorities remain the same with a focus on ensuring adequate resources for working capital and capital expenditure growth, and an opportunistic approach toward acquisitions, investments and the repurchases of stock.

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

Operator?.

[Operator Instructions] We'll take your first question from Steven Fisher with UBS..

I missed the first minute or so of your comments, so just -- within the electric business, wondering if you could comment on how the year is playing out relative to your expectations at the start of the year and what's your confidence in a better rate of bookings in that segment later this year?.

Well, I think that the year on electric is playing out as we expected it to. I think the revenues and margins that we expect to generate are consistent with what we guided at the beginning of the year.

We are bidding and negotiating more work than I've ever seen before in the history of this company, and there are many opportunities on both the electric side and on the oil and gas side to build additional backlog. So the outlook is bright from my standpoint. I think we've got significant opportunities.

Our guys are really doing a great job in the field executing, and we're meeting our customers' expectations as these projects get bigger and more complex and, as a result, we're getting more opportunities to grow our business as our customer capital programs expand..

Great. And then on the pipeline side, just curious, now that you have it back into the execution on the mainline pipes for a couple of quarters, just really what you have learned from the execution experience you've had. And I heard you say you're going to be executing some mainline pipe projects in the winter.

So I guess, I'm just trying to get a sense of how confident we should be about the expected execution there..

Well, as I mentioned on the call, we have a lot of work pending in Canada. And a lot of that work is performed in the winter months when the ground is frozen. You can't work in many of these permafrost areas until that phenomenon occurs.

So that's one reason why we're seeing the first quarter, second quarter, not -- we don't see the seasonality that we've seen in the past because we're doing more work in Canada and it's more conducive to work it in the winter. So that's not -- we don't expect any execution issues.

To answer your first question, I mean, we've done a really nice job, like I said on the first question, executing across all of our segments and those results are being seen at the bottom line..

And we'll take our next question from Tahira Afzal with KeyBanc..

I guess first question is, I know you've guided your range for the midpoint of your 2014 range is the same, but I would love to get a sense of why you've taken the top end down by a smidgen. Your revenue line is -- guidance is the same so -- and your first quarter performance, first half performance seems to be in line.

Any color on that would be helpful..

Yes, Tahira, this is Derrick.

As it relates to the top end on the EPS side, we've guided throughout the early portion of this year that we'd have some degree of mainline awards as a potential and we had a degree of uncommitted work associated with those mainline awards and it looks as though that -- although that some of those awards are coming about, that most of that production would actually occur in 2015, which is one of the things that we had said relative to our overall guidance, is that, that opportunity existed.

So because of that and the work occurring more the -- either the very, very end of '14 or rolling into '15, we've decided we would reduce the top end of the EPS range. Having said that, the overall growth of the company in most everything else is still continuing to grow. It's just that the contribution at the mainline will be pushed off a little bit.

So that's why revenues you see still yet within that higher portion of the range..

Got it. Okay. That makes a lot of sense. I guess, the second question I had was on the electric T&D side, we've seen some incrementally positive regulatory decisions in a sense.

The ROE case that people are worried about, if anything, has been slightly more positive than the utilities anticipated, and really the commentary coming out of earnings even from, say, some large utilities is they're raising the CapEx on the transmission side. So could you talk about some of the large projects. I know Canada has been humming along.

But are you seeing any more movement now that, that is settled in a sense on some of the large projects in the U.S.?.

Tahira, I don't want to point out any specific project. I'll just tell you that almost all of our key customers are -- really, most of the utilities in the United States are increasing their CapEx going forward. Regulation's a big driver of that spend.

That's one reason why I highlighted the physical security of assets needing to be strengthened because that's just another opportunity for us to generate revenues from opportunities. We continue to see positive trends in the electric segment and it bodes well for the future performance..

And we'll move on to Noelle Dilts with Stifel..

I wanted -- Derrick, to circle back on your comment about some of these projects getting pushed, pipeline projects getting pushed from late '14 into '15, I think there's been a lot of chatter in the market about some of these projects getting a little bit pushed to the right. And I'm curious if you guys have any thoughts on why that's happening.

Is it just the fact that these are complex projects or if maybe there are some constraints at FERC in terms of getting some of these approvals through? I'd just be curious to hear your thoughts on that..

Yes, Noelle, this is Jim. I'll take that. We're just saying, it's not anything that I would be concerned about. I mean, we still see a very active mainline environment. It really gets into the dynamic of the end of the year, which is more of a cutoff issue for us. And we are seeing some projects push.

I mean, when does it -- some projects are starting later in the year than we thought. When does it freeze in Canada? When can you get started? Does the project start more in the fourth quarter or in the first? So it's that type of dynamic.

We did have -- there are some projects -- there is at least 1 project that pushed from this calendar year till next from a winter-build standpoint. But I wouldn't say it's anything that we didn't expect that could happen.

And it's nothing that really alarms us from a standpoint of the overall market opportunity we see in mainline in the next couple of years..

Okay, great.

And then my second question, given that you're working on negotiating these longer-term agreements in pipeline, could you just give us a sense of what maybe one of those relationships would look like? Would you be doing all of the work for this customer you'd have the relationship with? And then if you could give us just some thoughts on if you're having some success in maybe sharing some of the weather risks on these projects more equitably..

Well, I think you have to. I mean, when you look at multi-year agreements, you really don't know what specific project you're going to be building 3 years out.

And the project could be, it could be built in the wintertime or in the summertime so there has to be some shared risk, because you'd -- on any -- and historically, you're bidding on a given project that's starting. The scope of that project is well defined. The time of year you're building it is well defined.

The geographic area you're building it is well defined. In these 5-year relationships, it's really -- 3-, 4-, 5-year relationships, it's more of a commitment to meet that customer's needs going forward. So you have to have a more shared-risk approach because you don't know all of those key dynamics that allow you to bid a project and take more risk.

And to your question about is the customer going to deal with just 1 contractor or several. I would say that it's all of the above. You could have a customer go with 1 contractor. You have some customers that have such large capital programs over the next several years that they're probably going to have to go with 2 or more..

And we'll take our next question from Adam Thalhimer with BB&T Capital Markets..

I think I missed this, but just, can you talk a little bit more about the electric margin in Q2 and how that's expected to trend in the back half of the year?.

Yes, this is Derrick. As it relates to the second quarter, the margin came in about 9%. We had anticipated that the margin would be impacted during the quarter, predominantly associated with the breakup effects, late winter breakup effects that we had talked about in the first quarter. That's the predominant effect of that.

It came in probably, I'll say [ph] maybe a little bit lower than we expected because not only the impact of the breakup, but then we also had various wet weather associated with the spring weather in the Midwest and various other factors. We had some startup costs associated with some new MSA work.

We had a little bit of transition from some of the transmission work such that we had some slight negatives associated with some job closeouts. So a couple of different things happened but, by far, the predominant impact was associated with breakup.

As it relates to the rest of the year, we continue to see the margins in electric power to be in the 10% to 12% range, and I would anticipate that the third and fourth quarter are going to have margins from what we would see today comparable to what you've seen in previous periods..

Okay. And then secondly, I wanted to ask about -- the new full year guidance implies Q4 as a little bit down from Q3 sequentially, EPS. And in most years, Q4 is your strongest quarter.

So is there anything specific going on or is that maybe just a little bit of conservatism?.

No. Actually, I would say that -- although recently, the fourth quarter has had some strong quarters, I mean, generally speaking, the fourth quarter for us has a tendency to trend down.

I mean, the third quarter historically is always the highest quarter and then the fourth quarter has a tendency to trend down, both in revenue and in EPS, predominantly associated with weather-type effects. As we stand here today, I think the fourth quarter revenues can -- will trend down a little bit.

They may end up being a little bit equal, but I think the margins themselves will continue to trend down like historically, based upon the seasonal impacts..

And next we'll move on to Vishal Shah with Deutsche Bank..

This is Jerimiah on the line for Vishal. I just wanted to touch on the breakdown between Canada, the U.S.

and Australia, and any kind of color you can give there in terms of how that may be shifting or if there's any shift for you in your backlog specifically?.

Yes, this is Derrick. We continue to see Canada be a growing component of our business. And historical, those numbers were probably in the 10% range. But as we continue to see our current outlook, I think you're going to see Canada get up into the 15% and 20% range of our business.

I think that the backlog is probably somewhat comparable, what you see backlogged in Canada being somewhat comparable to that percentage. Australia right now is probably still a relatively small percentage. It's under 5%, but as Jim said, the aspects of growth there are pretty solid.

So with the acquisitions and the dynamics of that market, I think they will continue to grow. But as of now, I don't think I'd say that I anticipate it getting above anywhere a 5% range for at least the near term..

Okay. That's helpful. And then obviously, on these large contracts you get some lumpiness and we saw that in this quarter. But you touched a little earlier on the potential to get back to record backlog levels.

Is that -- given the project push-outs, is that something we would see in the back half of this year or early next year? Any color on that?.

I would just say that the overall trend is that we have the opportunity to be at record levels backlog again. I'm not going to say it's going to be next quarter or the quarter after. It's just difficult for us to predict that because of the timing and nature of awards. We -- the important thing is we're having discussions with customers.

We are in their offices. We work for most of the investor-run utilities and Canadian utilities. We know what's in their capital programs going forward. And that leads us to believe that there is certainly opportunity to build backlog from here.

But the timing of whether that happens next quarter or this year, into next year, it's just difficult to predict that..

And we'll take our next question from Dan Mannes with Avondale Partners..

Couple of quick follow-up questions. I want to hone a little bit more on the second quarter and on the oil and gas business. I think, Derrick, in your comments, you mentioned maybe a little bit of a boost on closeouts.

Could you maybe give us a little bit more granularity there? And then secondarily, can you maybe help us bridge from the second quarter, which had, I think, your best margins we've seen in a long time, to maybe a second half you when I think you'll have probably better utilization on mainline?.

Dan, I think when you said boost, I'm not sure if you're talking about oil and gas or electric power. Electric power we had a degree of negativity from some changes. But on....

No, oil and gas..

Yes, I think oil and gas is what you're referring to, sets that [ph]. It's not job closeouts. It's just continuing to execute to contingencies on the job. Those jobs actually are still in progress. So there wasn't really any closeout.

It's just the execution on the jobs such that we're able to continue to execute through contingencies and therefore, see a higher overall performance on the projects themselves. As it relates to the rest of the year within that segment, we see -- I think probably in the third quarter, we'll be able to be in the 9% to 12% range.

And then when you're looking at the fourth quarter overall, we have some degree of seasonality expectations so that the range contemplates something that'd be below the 9% to 12% range, to something that may be still in the 9% to 12% range depending on seasonality..

And then the follow-up there, as it relates to utilization, historically, you'd struggled a little bit on the mainline side. Sounds like that's getting better.

Can you maybe give us a little bit more color on where you are in terms of already contracted utilization as you work through the balance of this year versus maybe where you were in the first half or prior periods?.

Well, Dan, let me just say that all of our people are fully deployed in the shales right now doing gathering where we're not doing mainlines. So I would say that the utilization of our crews is very high.

I think what we're doing is we've done a really good job of strategically positioning ourselves to where the -- when these mainline projects move to construction that we're able to mobilize on them going forward.

And obviously, because of the nature of mainline, the contractual arrangements compared to gathering, those jobs will command higher margins. Like Derrick mentioned, if you can execute to those contingencies, those margins will fall to the bottom line and that's where you're going to get the bump in profits..

And next we'll move on to Will Gabrielski with Stephens..

Could you talk a little bit more about Australia as an opportunity and, I guess, your commitment there in the long run? And then specifically across both businesses, I look in the U.S., right, it's like scale, labor and equipment are big advantages.

How do you transfer that into Australia?.

Well, I think it's the same thing. Scale, labor and equipment are a big advantage in Australia, and I think we pride ourselves on being first movers into areas that we believe will have significant infrastructure builds in the coming years. And there are a lot of dynamics in Australia that bode well for us to grow that business.

Right now, we're doing coal seam gas in Queensland, which has got a 10-year run on it. That's where a significant part of our revenues come from today. They're privatizing utilities there. They've got an aging water and telecom infrastructure that needs to be rebuilt. The electric grid needs to be upgraded as well.

It's similar age and condition as we see here in the States. You've got a large unconventional shale that's yet to be tapped into, the Cooper oil sands. That's really almost like being in the U.S. back in '08. There's a lot of development and activity that will occur there. So the mining business will return.

There's electrification of those mines that needs to happen. Pipeline infrastructure needs to be put into place. So we believe this can be a $1 billion business for us over a period of time or we wouldn't be there. And we're building a service model that's very similar to what we have here in the States to execute on those opportunities..

That's helpful. And then there's been some talk over the last few months about new entrants into North American transmission market, not just on the construction side but maybe even some of the bigger E&Cs getting in as owners, engineers or project managers.

How do you work with them? Is there anything that's changing? And do you view that as a risk, opportunity or just more of the same?.

No, that doesn't change anything from our perspective. We're the largest contractor that has the specialized workforce to do the work on transmission and distribution in North America. And certainly, it doesn't really matter to us who's doing the engineering on those programs..

And we'll move on to Andrew Wittmann with Robert W. Baird..

I was wondering, Derrick, if you could give us -- maybe you stated this or not -- but the amount of acquired backlog in the quarter, and maybe by segment, if you have it..

Yes, during the quarter itself, we really didn't make any significant acquisition. So there was nothing there per se. But the CPP acquisition, which happened post-the quarter end, the backlog associated with it was roughly about -- probably about $50 million. But that was acquired post-June 30..

Great. Helpful. And then just on the cash flow here, Derrick, can you give us some help as to what you think the back end of the year might look like now that we're kind of progressing into that time period. Clearly, you've been making some investments and cash flow has been okay, but probably could maybe be a little bit better.

Just wondering your thoughts on what you see in the next couple of quarters..

Yes, I mean it's -- we don't project our cash flows publicly. They are quite volatile. Usually it's associated with the seasonality of the business and oftentimes what happens there in the fourth quarter.

I do believe that we have the capabilities of having good cash flow still yet based upon the way things flow, more specifically, to the extent that we have revenues decline in the fourth quarter off the third quarter if that seasonal effect happens. That generally creates a pretty strong fourth quarter cash flow.

So it's difficult for me to say -- call out anything specific, but I do think that we'll still be able to be positive free cash flow for the year..

And we'll move on to William Bremer with Maxim Group..

Okay, a lot of good color on -- especially on mainline as well as some of the shale work. Can we touch base on downstream, what the current market there is and what you're seeing? And then my follow-up question is just an update on your offshore activities..

Yes, Bill, the downstream market is actually as active as the midstream and upstream and we actually are greenfield-ing opportunities in some of the Houston ship channel and some of the refineries and petrochemical plants. So we probably have.

It's not material today, but we're certainly building that business, and they've got the same issues as the rest of the services that we provide, whether it's resource limitations. We actually have a company that does EPC substations in the downstream sector. We're also building our electrical service offerings to that sector.

Offshore, the demand for our offshore services continues to increase. There's additional CapEx being deployed into deepwater. The shelf really hasn't slowed down the Gulf of Mexico. We fabricate and install production systems on offshore platforms.

There's some mechanical hook-up work that we're doing, there's some redundant pipeline systems that are being built offshore, off the Eastern Seaboard. We're involved in 1 project which we, I believe, talked about in the past. So it's Williams -- we're working with Williams to do some work for National Grid off of New York State.

So it's a very active environment right now. And we're real pleased with the progress we've made there and continue to see opportunities to grow that business..

And we will move on to Jamie Cook with Crédit Suisse..

This is actually Ben Xiao on for Jamie. You guys previously mentioned that C3 study, which predicts near-double-digit transmission growth through, I think, 2020. And you guys have previously expressed confidence about growing transmission double digits for at least 2 years.

So are you guys becoming more confident that you can grow at double digits maybe beyond that?.

We haven't given guidance beyond our commentary that we see double-digit growth in 2015. Certainly, we'll plan to roll our commentary forward when we get comfortable to do so. There's a lot of puts and -- pushes and pulls, obviously, with permitting and siting.

Our customer capital programs indicate that there will be that opportunity there with the spending that we expect over the next 5 years. But as far as us translating that into how that will affect us over any calendar year, we're not at that point yet to discuss that..

Okay. And then just a quick second one.

Can you talk more about pricing in oil and gas and electric power relative to maybe 3 to 6 months ago? Has there been any improvement or is it still relatively stable?.

The pricing environment continues to be strong, and margins and backlog are comparable to what we're executing on today..

And we'll take our next question from Craig Irwin with Wedbush Securities..

Jim, I wanted to ask you a big-picture question. So ahead of the huge upswing in activity that you've seen over the last several years in the electric T&D market, you guys were talking about it for a while, maybe for 1.5 years, maybe 2 years, you had excellent visibility from your customers that they were going to be doing projects.

And that materialized.

Can you maybe compare and contrast with the oil and gas and pipeline cycle that you're facing down now, how you see your visibility versus maybe where you stood in front of the electric T&D cycle? What gives you confidence these customers are moving forward with their projects and how you see this potentially as -- if you could shape it out versus the T&D cycle and how that materialized for us?.

Craig, that's an excellent point. And because of the discussions that we are having with customers, it feels very much the same as the late part of 2010 when we were about to impart on this construction, this transmission construction up cycle that we've seen over the last 3 years. And it's a very similar feeling with what we're seeing on mainline.

And it's not just Quanta, it's the industry in general. It's all of the contractors and all of the customers. Because of these detailed discussions we've been having with them over the last year, because we all know there's a significant amount of work to be done and there's a limited amount of resources, and it's a very, very -- it's the same.

It's the same. It's déjà vu over again, but with the oil and gas sector, not the electric power transmission business..

My second question is about the segment operating margins in the oil and gas segment.

As you start to have a greater mix of construction over a longer portion of the year, in the winter and early spring, can you talk about what this could potentially mean for margins within that segment and whether or not the potential larger lines agreements that you're looking at would also have implications for operating margins in that segment as we model it out for the future?.

Craig, this is Derrick. Yes, as we've talked, the contribution of additional mainline work continues to give us confidence that on an annual basis, you'd be able to see margins in the 9% to 12% range. From the seasonal impact of that, it's a little difficult to say yet.

We haven't gotten into looking at the quarter guidance of '15 to see as to whether we'd be in a spot where the -- that 9% to 12% would carry into, as an example, the first quarter, which is our seasonally lowest quarter.

I would say that I still believe, as we stand here today, that the seasonality effects will generally still be such that the first quarter will be our lowest margins of a given period. But as to how that's going to translate directly into 2015, that's hard to say.

From this year, I think that you'll see the third quarter continuing to be able to have the opportunity to be in the 9% to 12% range for that segment and then the fourth quarter seasonality, putting a degree of pressure on that.

But long-term, we feel confident that all of the projects that Jim has talked as opportunities for us would continue to get us into an annual 9% to 12% operating performance..

And we'll take our next question from Brian Lee with Goldman Sachs..

This is Tom Daniels on for Brian. Maybe a quick question on the fiber optic business if I could. Very strong operating margin in that business. Revenue was down a tick year-over-year, but margins were very strong.

Could you guys comment on that a little bit?.

Sure, I mean, the revenues are down because of the ancillary telecom business. We combined telecom revenues that are not associated with the fiber business together with our legacy fiber business. As it relates to the overall segment itself, we still see growth opportunities probably in the mid-single digit range.

Predominantly in the long-term double-digit growth opportunities driven from our moving into the lit fiber market. From a margin perspective, I'd still say that we see margins in the 30% to 35% range. There's a little bit of fluctuation that occurs in that associated, as we've called out today, on the maintenance cost of the network.

But I continue to expect margins likely in the 30% to 35% range as it states for now. In the near term, has the risk of it being a little bit lower because of the lit fiber dynamics as we start to roll that out, but in the long term, I still think that we'll feel comfortable that it'd be in the upper end of that range..

Understood, thanks. And then one question regarding your prepared remarks on the supply-demand dynamics in mainline and, potentially, demand outstripping supply. How do we think around the timeline of that? I know there's a lot of reversal work I think we're predicting over the next, kind of call it, 2 years in the U.S.

but I imagine the dynamic is different in Canada.

How do you think about supply-demand in Canada versus the U.S., and maybe which year do you expect the potential for demand to actually outstrip supply in each region?.

I think it just depends upon on how these projects lay out. So it could happen in '15 if things get -- projects lay out perfectly for the customers, perhaps you don't get that dynamic. But it could happen in '15, it could happen in '16. I'll just say there's a significant amount of work to our customers are concerned about it.

The capacity in Canada is less than what -- significantly less than what the U.S. has, and certainly that's going to be a pinch point as well. So it's a multi-year phenomenon that can occur.

It can be seasonal as well but certainly the contractors' ability to support customers is going to be challenged as customers move forward with their programs here over the next 2 years..

And that concludes today's question-and-answer session. At this time, I would like to turn the conference back over to management for any additional or closing remarks..

Well, I'd like to thank all of you for participating in our second quarter 2014 conference call. We appreciate your questions and your ongoing interest in Quanta Services. Thank you and this concludes our call for today..

Thank you so much. And that concludes today's conference. We appreciate your participation..