After several years of strong financial performance, what happened in 2015 that challenged the company’s financial results?
Quanta’s financial performance in 2015 was disappointing and unusual from a historical perspective. We experienced execution challenges on some projects, severe weather that impacted production, project delays, a challenged commodity and capital markets environment and heightened competitive pressures in the small transmission market. We believe most of these issues are short-term dynamics and are confident in our ability to achieve long-term, profitable growth.
How is Quanta differentiating itself in the marketplace and positioning for long-term, profitable growth?
Quanta is the largest energy infrastructure specialty contractor in North America with unmatched scope and scale and broad self-perform capabilities, which enables us to provide comprehensive solutions to our customers. In a tight market for skilled labor, Quanta is an employer of choice with industry-leading safety performance and significant investment in our employees. As our customers’ infrastructure development programs get larger and more complex, Quanta has expanded its capabilities to stay ahead of our customers’ needs.
How is the low oil price environment affecting demand for Quanta’s services?
Low oil prices have impacted demand for some of our services; however, many of the services we provide to our customers are for strategic infrastructure needs driven by longer-term trends. For example, adequate mainline pipeline infrastructure has not been built to transport the significant increase in oil and natural gas production over the past five years, which creates significant demand for new mainline pipelines and opportunity for Quanta.
While 2015 was challenging for our company and the industry, Quanta is well positioned to capitalize on positive, multi-year industry trends.
What are the end-market drivers that are creating demand for Quanta’s electric power infrastructure services?
The North American power grid is aging – some estimate as much as two-thirds of the grid is approaching or beyond the end of its useful life. There is significant need to repair, replace, upgrade and maintain transmission and distribution infrastructure throughout North America. Regulation continues to be put in place to address this issue. Regulation is also changing North America’s generation mix toward more natural gas and renewable generation, which requires significant upgrade, new build and enhancement of the power grid. As a result, we believe we are in the early stages of a multi-year investment cycle in electric transmission and distribution infrastructure.
What are the end-market drivers that are creating demand for Quanta’s oil and gas infrastructure services?
Production of oil and natural gas from North American unconventional formations has grown dramatically over the past five years and is expected to remain at high levels. Much of these resources are in areas that have not been traditional fossil fuel sources and do not have adequate energy infrastructure. In particular, there is significant demand to build mainline pipelines to move hydrocarbons from production areas to end markets. As the largest pipeline construction company in North America, Quanta is well positioned to assist our customers in meeting their development goals.
What are Quanta’s capital allocation priorities going forward?
Our capital deployment priorities are for opportunities that support the achievement of our long-term strategic goals to profitably grow the business and create stockholder value. These priorities include ensuring capital is available to support working capital needs, particularly as projects become larger and more complex, capital expenditures, acquisitions and strategic investments. When we find ourselves in the position to return excess capital to stockholders, we have historically favored stock repurchases.
As the leading pure-play company serving the energy infrastructure markets, Quanta is focused on the changing needs of the industry. More than ever before, our customers are seeking comprehensive solutions, safe project execution and cost certainty.
What role do acquisitions play in Quanta’s strategic plans?
Acquisitions will continue to play a strategic role in differentiating Quanta in the marketplace and positioning the company for profitable long-term growth. We seek successful companies with proven entrepreneurial leadership and that bring strategic value to Quanta – for the right price. Acquisitions, coupled with organic growth, enable us to expand our service footprint, enhance our capabilities and strengthen customer relationships.
What was the strategic rationale for Quanta's sale of its fiber optic licensing operations in 2015?
In August 2015, Quanta sold its fiber optic licensing operations for $1 billion in cash. The transaction enabled us to enhance our strategic focus on energy infrastructure markets, which we believe will undergo substantial development in the coming years. Further, it allowed us to unlock the significant value of our fiber optic licensing operations, with the sale price representing a multiple of 15 times trailing EBITDA.
Quanta repurchased a significant amount of its outstanding common stock in the open market during 2015. How is the company doing that and what is the rationale?
In 2015, Quanta returned the largest amount of capital to stockholders in company history. Through two stock repurchase programs Quanta bought nearly $1.5 billion of its common stock, which reduced our outstanding shares by 28%. These stock repurchases demonstrate Quanta’s confidence in our long-term growth prospects and commitment to enhancing stockholder value. The significant net proceeds from the sale of our fiber optic licensing operations, coupled with a strong balance sheet, internal cash flow generation and an attractive equity valuation led us to believe stock repurchases were a preferred use of capital.
During 2015, Quanta moved on multiple fronts toward building value for our stockholders. These actions demonstrate strong confidence in our long-term growth prospects and our commitment to enhancing stockholder value.