Article Excerpt:
TWST: What is Quanta Services?Mr. Colson: Quanta Services is a leading provider of contracting services to the electric power, telecommunications, natural gas, and cable TV industries. We provide services to these customers throughout North America. The largest portion of our revenue is derived from electric power and gas utilities. We provide services to our customers in this area by working on the transmission and distribution systems and gas distribution networks across the country. Revenues from these customers total 66% of our total revenue. We were founded in 1997, and went public in 1998. The original four companies initially recognized approximately $150 million in revenue. We grew very quickly through internal growth and extensive acquisitions and last year we achieved $1.86 billion in revenue.
TWST: Give us a high level look at the industry itself. What are its
dynamics as far as your customers, their needs, and what they're
undergoing?
Mr. Colson: Various customer dynamics fuel Quanta's growth. One,
electric utilities continue to outsource. Our electric utility customers
are doing more work with outside contractors rather than utilizing their
internal resources. In many cases their internal resources are limited
since during the economic downturn, many utilities reduced the number of
internal employees. As spending increases, utilities look to outside
contractors, such as Quanta, to do this work. Over the past several
years, utilities have incurred debt from investments outside their core
transmission and distribution business. Many utilities have announced a
strategy to return to investing in their core competencies, including
their transmission and distribution businesses. So, as their financial
condition has improved through the sale of some of these non-core
assets, they have been paying down their debt and have built cash on
their balance sheet. They're spending this cash on their core business,
which brings increased business for Quanta. Another trend influencing
the industry is the Energy Policy Act, passed in August of last year.
The Act provides rules and reliability standards for utilities. This
requires utilities to meet certain reliability standards; these rules
will be enforced by the Federal Energy Regulatory Commission (FERC). We
expect that when these rules become effective, utilities will spend more
money on maintenance and expansion of their transmission systems. The
Energy Policy Act also provides utilities with incentives to rebuild the
transmission grid, which is in dire need of repairs. Under the act, FERC
will help streamline the process and help utilities with site rules on
projects that have national interest. FERC will also be the prime agency
for the entire government to issue permits for building across
government land for things like the National Forest, which have been a
source of bottlenecks in the past. FERC is also providing increased
tariffs for certain transmission lines and is implementing additional
programs to encourage further investment in the utility space by
repealing the Public Utility Holding Company Act (PUHCA). We believe
that will result in even more outsourcing. As people outside of the
power industry invest in utilities, there will be an increased focus on
reducing costs. One way to do that, of course, is through increased
outsourcing. On the telecommunications side of our business, we are
seeing growth from many of our customers investing in fiber-to-the-
premise or fiber-to-the-node initiatives, often referred to as FTTx.
Verizon, SBC (now AT&T), BellSouth, Alltel, CenturyTel, and many other
customers are investing in deploying fiber and broadband services deeper
into the network and closer to the consumer. In many cases, this
requires extending fiber into the node, which is in the neighborhood, or
taking fiber directly to the home. In any case, they are getting fiber
optic cables closer to the consumer to increase the amount of bandwidth
delivered to the average household. This trend has been ongoing for
about 18 months and we expect further investment this year as AT&T and
Verizon further their FTTx initiatives.
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