Logo of jester cap with thought bubble.

Image source: The Motley Fool.

Quanta Services (NYSE:PWR)
Q1 2019 Earnings Call
May. 02, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Greetings, ladies and gentlemen, and welcome to Quanta Services first-quarter 2019 earnings conference call. [Operator instructions] It is now my pleasure to introduce your host, Mr. Kip Rupp.

Kipp Rupp -- Vice President of Investor Relations

Great. Thank you, and welcome, everyone, to the Quanta Services first-quarter 2019 earnings conference call. This morning, we issued a press release announcing our first-quarter results, which can be found in the Investors & Media section of our website at quantaservices.com, along with a summary of our 2019 outlook and commentary that we will discuss this morning. Please remember, the information reported on this call speaks only as of today, May 2, 2019, and therefore, you're advised that any time-sensitive information may no longer be accurate as of any replay of this call.

This call will include forward-looking statements intended to qualify under the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These include all statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance 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 cautionary language included in today's press release, along with the company's 2018 annual report on Form 10-K and its other documents filed with the Securities and Exchange Commission, which are available on Quanta's or the SEC's website.

You should not place undue reliance on forward-looking statements, and Quanta does not undertake any obligation to update such statements and disclaims any written or oral statements made by any third party regarding the subject matter of this call. Please also note that we will present certain historical and forecasted non-GAAP financial measures in today's call, including adjusted diluted EPS, backlog, EBITDA and free cash flow. Reconciliations of these measures to their most directly comparable GAAP financial measures are included in our earnings release. Lastly, if you would like to be notified when Quanta publishes news releases and other information, please sign up for email alerts through the Investors & Media section of quantaservices.com.

We also encourage investors and others interested in our company to follow Quanta IR and Quanta Services on the social media channels listed on our website. With that, I would like to now turn the call over to Mr. Duke Austin, Quanta's president and CEO. Duke?

Duke Austin -- President and Chief Executive Officer

Thanks, Kip. Good morning, everyone, and welcome to the Quanta Services first-quarter 2019 earnings conference call. On the call, I will provide operational and strategic commentary before turning it over to Derrick Jensen, Quanta's chief financial officer, who will provide a detailed review of our first-quarter results. Following Derrick's comments, we welcome your questions.

This morning, we reported record first-quarter results with revenues of $2.8 billion and GAAP and adjusted diluted earnings per share of $0.82 and $0.96, respectively. Backlog at the end of the quarter was a record $12.6 billion, which we believe supports our expectations for this year and bodes well for opportunities for multiyear growth. It is worth highlighting that backlog continues to grow without meaningful large project awards and is primarily the result of incremental growth of programmatic spending with existing and new customers. As a result of our solid first-quarter results, increased visibility for our electric power services and confidence in our ability to safely execute, we are increasing our full-year financial expectations for 2019.

We are pleased with the growth of our utility focused operations and continue to enhance the stability of our business portfolio. We also continue to evaluate opportunities to strategically expand our geographic presence and diversify our service lines. These strategies are designed to mitigate many aspects of risk in our business, including customer, project, permitting, geographic, execution, weather and other risks. We believe Quanta's diversity, scope and scale and capabilities are unique in our space and set us apart both competitively and as investments.

Quanta is a construction-led specialty infrastructure solutions provider. Its portfolio of companies, services and geographic diversity position us to profitably grow through various cycles over time. Our electric power operations reflect broad base business strength in the quarter, with increased demand for our services in the Western region of the United States due to ongoing grid modernization and accelerated by our hardening programs. Over the past several years, devastating wildfires in California and hurricanes hitting the Gulf and the East Coast have caused significant damage to property and life.

These events have spurred our customers, state lawmakers and regulators to enhance the resiliency of the electric grid. Storm hardening initiatives are ongoing, and we have talked about them for some time. However, we believe the system hardening initiatives for improved resiliency against wildfires are in their very early stages. Multiyear utility capex budgets in California and other regions in the Western United States exceed $40 billion in the aggregate, with a significant portion allocated to grid modernization and fire hardening.

These initiatives are necessary for a resilient modern grid that benefits the economy and the rate payer and provide meaningful near and longer-term opportunities for Quanta. Also, during the first quarter, we and our partner ATCO completed and energized the Fort McMurray West 500-kV Transmission Project three months ahead of schedule, on budget and with an impeccable safety record. With a total project value of over CAD 1.6 billion, this was the largest project ever completed by Quanta and included engineering, procurement and construction services for the 508-kilometer transmission line project. The project was financed through the largest public-private partnership bond in Canadian history, was the longest 500-kV AC transmission line built in Canada's history and was ranked among the top 40 infrastructure projects in Canada in 2018.

Our success in this project would not have been possible without the dedication, hard work and safe, world-class execution by our partners and employees. This project is an example of how Quanta partners and collaborates with our customers to develop successful solutions. But this is only one example of many ongoing collaborative initiatives between Quanta and our customers that will continue to provide world-class execution on infrastructure projects. Additionally, the election in Alberta last month brings a political change to the province that is considered favorable to the energy and business communities.

While we are optimistic that this change will bring greater business confidence and positive policies that could encourage infrastructure development in Alberta and other parts of Canada, we are taking a prudent approach to our expectations regarding how this change could impact timing for several larger electric transmission and pipeline project opportunities. Our communications operations have also started the year well. Revenues grew significantly over the same quarter last year. We were incrementally profitable for the quarter and believe we are on track to generate approximately $500 million in revenue with mid single-digit operating income margins this year.

We also continue to believe we can achieve $1 billion in annual revenue with 10% operating income margins in the medium term as service providers continue to push fiber closer to the customer, fiber backhaul densification continues, additional fiber is deployed for 5G wireless and broadband network expansion initiatives in rural markets continue. Further, as 5G networks expand outside urban areas, we believe carriers will increasingly seek to utilize electric utilities' distribution systems for small cell locations, which should provide additional opportunities for Quanta. Turning to our pipeline and industrial segment. Industrial services performed well in the quarter and are on track for another record year in 2019.

Our utility base gas distribution and integrity operations are expanding, and demand for those services grew as utility customers execute on multi-decade system modernization and safety initiatives. The opportunity for base business work in this segment should continue to grow over the coming years, which includes supporting mainline and midstream infrastructure, downstream industrial services, natural gas distribution, pipeline integrity, MSAs, pipeline logistics management, horizontal directional drilling, field services and engineering. Our pipeline construction operations also executed well during the quarter, and we continue to actively pursue a meaningful number of large pipeline projects throughout North America. As natural gas mainlines from the Marcellus and Utica shales are placed into service to provide market access, we believe natural gas production will grow and our midstream operations in the Appalachian region will experience increased activity.

Additionally, we were actively building midstream infrastructure in the Bakken, DJ and Permian Basins. We are also seeing multiple pipeline opportunities driven by LNG and petroleum export development in the United States and Canada and are well-positioned to benefit from these growing markets. Further, increasing oil and natural gas production in West Texas is outstripping available mainline capacity, and there are a number of pipeline projects in various stages of permitting and development to have moved oil and gas from West Texas to market. We have strong midstream and mainline pipeline capabilities in Texas and other regions of North America and are actively pursuing opportunities that could result in project awards as we progress through the year.

Demand for our services is high and industry resources are increasingly strained as a result of the historic levels of customers' capital and operating investments. We expect to self-perform approximately 85% of our revenues this year, which allows us to provide cost certainty to our customers, control quality and mitigate execution risks. The solutions we provide are specialized, and we have the largest skilled workforce in the industry, which continues to grow as we meet the growing needs of our customers' multiyear capital spending plans. For many years, Quanta has made strategic investments in safety, training and recruiting to become increasingly self-reliant and to ensure we have the qualified workforce necessary to meet the needs of our customers and grow our business.

Our ongoing investment in training through Quanta's world-class training facility, Northwest Lineman College, our partnership and affiliations with educational and trade groups and our other regional activity all demonstrate our commitment to developing qualified labor to meet the longer-term needs of our customers and safety of our employees, which sets us apart in the marketplace. In summary, our record first-quarter results reflect a solid start to the year. Due to these results, increased visibility for our electric power services and confidence in our ability to safely execute, we have increased our full-year financial expectations. Quanta is performing well operationally and we continue to execute well against our strategic plan.

Our end market visibility are strengthening, and we continue to believe we are in a multiyear up-cycle with the opportunity for continued record backlog and results in 2019. We expect our base business to continue to grow and account for approximately 90% of our revenues in 2019. We continue to see more than $3 billion of larger electric transmission project opportunities and more than $3 billion of larger pipeline project opportunities that could be awarded over the coming quarters. There are also opportunities for new multiyear alliance programs over the near and medium term, and we expect robust growth from our communications infrastructure services operations with improved profitability.

We are focused on operating the business for the long term and expect to continue to distinguish ourselves through safe execution and best-in-class field leadership. We will pursue opportunities to enhance Quanta's base business and leadership position in the industry and provide innovative solutions to our customers. We believe Quanta's diversity, unique operating model and entrepreneurial mindset form the foundation that will allow us to continue to generate long-term value for all of our stakeholders. With that, I will now turn the call over to Derrick Jensen, our CFO, for his review of our first-quarter results.

Derrick?

Derrick Jensen -- Chief Financial Officer

Thanks, Duke, and good morning, everyone. Today we announced record first-quarter revenues of $2.81 billion, a 16% increase over the first quarter of 2018. For the first quarter of 2019, net income attributable to common stock was $120.5 million or $0.82 per diluted share. Adjusted diluted earnings per share, a non-GAAP measure, was $0.96.

Included in GAAP and adjusted diluted earnings per share for the first quarter of 2019 is the recognition of $60.3 million or $0.30 per diluted share attributable to previously deferred earnings related to the Fort McMurray West electric transmission project. Excluding this benefit, GAAP diluted earnings per share increased $0.28 or 117%, And adjusted diluted earnings per share increased $0.27 or 69% compared to the first quarter of 2018. Discussing our segment results. Our electric power revenues increased 6% when compared to the first quarter of 2018 to $1.66 billion and represents record first-quarter revenues for the segment.

This increase reflects continued momentum in our base business due to robust transmission, distribution and communications spending by our customers. The strength of the base business in the first quarter of 2019 offset approximately $106 million in reduced revenues from larger projects, as well as a lower levels of emergency restoration services compared to the first quarter of 2018. As Duke mentioned, in the first quarter of 2019, the Fort McMurray project was energized, however, the project had substantially reduced activities compared to the first quarter of 2018. In addition, while emergency restoration services decreased relative to the first quarter of 2018, we still exceeded our expectations, generating approximately $58 million of revenues during the quarter.

Operating margin in the electric power segment was 9.7% in the first quarter of 2019, as compared to 9% in the first quarter of 2018. Excluding our communications operations, which are included within the electric power segment, electric power margins were approximately 10%. Higher margins were attributable to solid execution across the segment, aided by elevated levels of spending on continuing fire hardening programs on the West Coast, which helped to offset normal seasonal effects within the segment. Communications infrastructure services operations continued to deliver both revenue growth and margin improvement, led by performance in our U.S.

operations. Margins for these operations approached mid single digits, improved for the fourth consecutive quarter, and we expect continued incremental margin improvement during 2019. Our ongoing larger communications project in Latin America has continued to run into delays due to severe weather, permitting and land acquisition. We had been working collaboratively with our customer and until recently had been receiving ongoing extensions as these items were outside of our control.

We had reached certain milestones, and despite our efforts, the customer was unwilling to accept delivery of the completed portion and delayed payment. Subsequent to the quarter, however, the customer positioned toward contract cancellation and the presentation of demand payment bonds. We believe our likely next step is arbitration and that we have substantive positions to obtain equitable resolution. Our pipeline and industrial segment revenues increased 34.6% when compared to the first quarter of 2018 to $1.14 billion.

This increase is attributable to both increased revenues from larger projects as 2018 larger project timing was weighted toward the second half of the year, as well as increased base business activities as our gas distribution, small transmission and industrial services all experienced growth when compared to the first quarter of 2018. Operating margin for the pipeline and industrial segment increased to 3.6% in 1Q '19 from 1.2% in 1Q '18. This was primarily due to the increased contribution of revenues from larger projects, which typically provide opportunity for higher margin, coupled with improved execution from our operations in weather-sensitive regions, which were negatively impacted in the first quarter of 2018. Partially offsetting this performance was approximately $8 million of increased estimated costs and reserves for potential liquidated damages relating to a processing facility project that was approximately 95% complete as of March 31.

Corporate and non-allocated costs increased $7.1 million in the first quarter of 2019 as compared to the first quarter of 2018 primarily due to increased intangible amortization expense and increased compensation expense to support business growth. Overall, these segment results combined to deliver record first-quarter adjusted EBITDA, a non-GAAP measure, of $202 million, an increase of $45 million or 29% when compared to the first quarter of 2018. For the first quarter of 2019, we had negative free cash flow of $141 million. Cash flow used by operating activities was $83 million and net capital expenditures were $58 million.

Increased working capital requirements to support fire hardening programs contributed to the negative cash flow from operating activities. Also, as we discussed in last quarter's call, PG&E filed for bankruptcy protection during the first quarter. In conjunction with the bankruptcy filing, payment of all pre-petition receivables was stayed as bankruptcy proceedings progressed. Our pre-petition receivables totaled approximately $157 million and remained outstanding as of March 31, 2019.

In April, the bankruptcy court approved the assumption of two contracts by PG&E, which will result in the payment of approximately $116 million of the pre-petition receivables in the near term. We believe this development and the speed at which significant portions of pre-petition receivables were resolved underscores the collaborative nature of our customer relationships and the value that our customers place on our abilities to strategically support them. Additionally, DSO for the quarter was 88 days, an increase of 11 days when, compared to 77 days for the same period in 2018. Although impacted to some extent by billing process changes for a few customers, the elevated DSO level is predominantly attributable to the payment schedule for the Fort McMurray project, including the reclassification of significant retainage balances from long term to current receivables during this quarter.

During the first quarter of 2019, we repurchased 376,000 shares of outstanding common stock in the open market for $12 million. After these repurchases, we had approximately $287 million of availability remaining on our $500 million stock repurchase authorization. Additionally, during the first quarter of 2019, we announced our second quarterly cash dividend of $0.04 per share, totaling $5.9 million. At March 31, 2019, we had $891 million in total liquidity, which results in a debt-to-EBITDA ratio, as calculated under our senior secured credit agreement, of approximately 1.75x.

As of March 31, 2019, our aggregate total remaining performance obligations were estimated to be approximately $4.7 billion, approximately 70% of which is expected to be recognized in the next 12 months. Our aggregate total backlog as of March 31, 2019, was $12.6 billion, an increase of 8% over the first quarter of 2018 and 2.2% over year end. 12-month backlog was $6.9 billion, in line with the first quarter of 2018 and December 31. The growth in total backlog reflects the continued strength of our end markets, our ability to capitalize on opportunities and, specifically, the longer-term demand for our base business activities.

Turning to guidance. Due to our solid first-quarter performance, continued strength in our base business and improved visibility into the remainder of the year, we are increasing our consolidated revenue range to be between $11.2 billion and $11.6 billion, with $300 million of that increase attributable to the electric segment. Our full-year margin expectations for both the electric power and pipeline and industrial segments are unchanged from our initial guidance and continue to reflect confidence in our ability to execute across our end markets. Of note, with regard to seasonality within the electric power segment, due in part to the acceleration of Fort McMurray project revenues into the first quarter and other project timing shifts, we expect second-quarter electric segment margins to likely be the lowest-margin quarter for the year.

With the expected increase in revenues, we are increasing our full-year earnings per share expectations to range between $2.86 and $3.32, and our adjusted earnings per share expectations to range between $3.40 and $3.86. We have also increased our expectations for adjusted EBITDA to range between $905 million and just over $1 billion. From a cash flow perspective, we continue to forecast free cash flow between $300 million and $500 million. However, due to the timing of certain cash receipts during the first quarter, coupled with our increased full-year revenue expectations, we are increasing our forecasted interest expense to range between $47 million and $49 million.

Similar to prior years, additional working capital required to support incremental awards, while revenue growth in excess of our current forecast could put pressure on our expectations for free cash flow and interest expense. As a reminder, we posted our guidance summary on the Investors & Media section of our website, which presents our current full-year expectations in greater detail. We believe our first-quarter performance and increased annual guidance continue to reflect the strength of our end markets, and particularly, the momentum in our base business, which current represents approximately 90% of our 2019 revenue expectation. We remain operationally and financially well-positioned to capitalize on larger project opportunities and are confident in our ability to execute on our strategic initiatives.

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

Questions & Answers:


Operator

[Operator instructions] Our first question comes from the line of Tahira Afzal with KeyBanc Capital Markets.

Tahira Afzal -- KeyBanc Capital Markets -- Analyst

Great quarter folks, first of all. I guess, my first question in regards to the pipeline space, obviously -- or I should say oil and gas, obviously, a very strong quarter for you as well on the margin side. Within that, I would love to get a sense of how the pipeline integrity business is doing. I know you are really focused on some of the margins there as well.

And are we seeing the improvements you are hoping for?

Duke Austin -- President and Chief Executive Officer

Yes. Thanks, Tahira. When we look at the pipeline segment, our LDC business, the utility side of it is doing very well. We came through the quarter quite nicely.

We said we would focus on the earnings, the margins there, and we have. And I believe you're starting to see some of that show up in the quarter. When we look at our industrial segment, it's certainly performed well. We said it was at record levels, and we think that would stay that way throughout 2019.

So that's done very well. Our big pipe, we're seeing activity there. We have not started yet really in this season, so that will be in the later half of the year. When we look at Canada, we're seeing some come back up our midstream business in Canada, as well as in the Bakken and Texas.

So overall, the things that we're working on are starting to come together. We're starting to see some margin pull-through in the segment and especially on the underlying business with the integrity and our utility side of that business. So we're pretty proud of what we're able to accomplish.

Tahira Afzal -- KeyBanc Capital Markets -- Analyst

OK, great. And my second question is on the transmission side. Duke, you talked about the $3 billion. But when we tally our prospects out there now and, to your point, you've seen some of the ones in Canada starting to come back in the map, could that end up being a conservative estimate for you? Just based on what we are seeing and based on the last cycle we saw right back in 2013, are we kind of piled up together? Is there a bias for that $3 billion to be revised up going forward?

Duke Austin -- President and Chief Executive Officer

I think when we talk about our large projects, we're pretty conservative on any side of that. And certainly, the numbers that we're chasing are much larger than that. I think it's more so just to say that when we look at it, there's still about $3 billion, $3 billion on both sides of the business out there with large projects. That number fluctuates, but certainly, that if you look at that pipeline, it's much bigger than those numbers.

Operator

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

Noelle Dilts -- Stifel Financial Corp. -- Analyst

Congratulations on a good quarter. Just given that we're in such a tight labor market, and I know that Quanta has taken a lot of actions to try to ensure that you have a strong supply of labor, can you comment on just generally from a high level if you do think that there -- that labor is getting tight in any of your markets and if basically your position as an employer of choice is beginning to become more valuable?

Duke Austin -- President and Chief Executive Officer

Thanks, Noelle. When we look at Quanta in general, I think that's what we focus on, specialized skilled labor and our ability to perform. So for us, the tight labor market bodes well. And I think we've done the necessary investment, and we talked about $100 million of investment with labor training, up training.

So I think all those things that we've done in the past are starting to pay dividends in the future. And I do think when we move forward, labor will be key for us to have some growth and also to make sure that we're able to service our clients in this base business type utility work for the foreseeable future. So we'll continue to concentrate ourselves on how to get labor pull-through and make sure that we're training them, training them early and getting them into the field, where we can be more productive. So that is a key for our business going forward.

Noelle Dilts -- Stifel Financial Corp. -- Analyst

OK. And second, there's just been a little bit of discussion at FERC that came out a few months ago talking about kind of rates of return allowed on transmission and distribution lines. Any kind of high-level thoughts on how that will shake out and if there will be any impact on the industry?

Duke Austin -- President and Chief Executive Officer

We're seeing different things in the states, even on some of FERC 1000. There are some legislation in Texas on basically return -- allowing the incumbent to have first right of refusal on any FERC line. So things like that. Look, I think you're going to see consistent returns.

They're not going to get one way or the other too far, and people will want to invest in infrastructure in the U.S. for the foreseeable future. I don't think FERC -- they want to build lines. We have a great commissioner there, chairman.

So I think the way we see it, FERC will enable construction for a long -- infrastructure builds for a long period of time.

Operator

Our next question comes from the line of Andrew Kaplowitz with Citi.

Andrew Kaplowitz -- Citi -- Analyst

Duke, you talked about fire or storm hardening and grid modernization in the past, but it seems like the focus in the U.S. West grid has continued to ramp up. And then it looks like you grew pretty strong double digits in the quarter in your base business. So can you give us more color to how long a higher level spend could last? Do you see this build-out in the U.S.

West as a multiyear build-out? And do you have visibility into double-digit base growth now at least through the end of this year?

Duke Austin -- President and Chief Executive Officer

I think we've talked about in previous quarters and even last year that we're concentrated on growing that base business, which is around 90% of the company. And when you go back and pull back in the utility side of that, we think that piece will continue to grow kind of mid single digits, and then we stand by it. That's sustainable. All the things that you're seeing from fire hardening to storm hardening and grid modernization, it's there.

It's real. We need a modern grid. If you go into automation, self-driving, you're going to need a stable, sustainable grid. There's tons of reports out there about it.

But I think as far as we can see, we see continuing growth for our business in the T&D space.

Andrew Kaplowitz -- Citi -- Analyst

That's helpful. And then if I look at total backlog in pipeline and industrial infrastructure, it did go up in the quarter despite you saying there wasn't really any bigger projects that you booked. So if this just what you've been talking about, pipeline integrity, midstream in general, improving was the bigger projects, I think you booked it, and really just acceleration in these sort of base businesses within the oil and gas business as well.

Duke Austin -- President and Chief Executive Officer

Yes. We didn't have a large project per se in the quarter. But certainly, these larger programs, alliances, some things that we're doing on industrial services, we're starting to see those things come into backlog, larger programs, multiyear programs that we're able to kind of put in backlog now. But we don't announce those projects at any given time, but they are large in nature.

Operator

Our next question comes the line of Chad Dillard with Deutsche Bank. Please proceed with your question. Mr. Dillard, are you sure your line is not on mute? We'll move on to Jamie Cook with Credit Suisse.

Kevin Wilson -- Credit Suisse -- Analyst

This is actually Kevin on for Jamie. Just a question on the free cash flow. Understanding the outstanding receivables from PG&E, I guess do you have a sense of sort of the cadence of free cash flow for the rest of the year? And then sort of related to that, are you still expecting broadly up to 50% conversion of adjusted EBITDA? Because at the midpoint of your guidance, it looks like you need about $600 million of free cash flow in the remaining nine months to achieve that.

Derrick Jensen -- Chief Financial Officer

Yes. We still expect our free cash flow to still be in the kind of the $300 million to $500 million range. From a cadence perspective, similar to our previous commentary, we think it will be largely back-end loaded. The seasonality of the year will still probably put a degree of pressure into the second and third quarter with a drift in the force of the largest portion of it by far will come in the fourth quarter.

Not uncommon, though. As it relates to the timing from a PG&E perspective, I would tell you that we have some visibility to be able to see some of that coming in kind of in the near term, potentially a large portion here by the end of the second quarter. But there's some administrative things that we need to deal with as far as on our side and there's going to be administrative processes of getting those things through the system. So I think that in the second and third quarter type dynamics when you'd see some of that recovery.

Kevin Wilson -- Credit Suisse -- Analyst

That's helpful. And then you mentioned in the release an acquisition during the quarter. I was just wondering how significant that was and which segment. And then in general, is the M&A pipeline, how is that looking? And I don't know if you have any updated thoughts on capital allocation in general.

Duke Austin -- President and Chief Executive Officer

Got it. The acquisition was specialized, an aviation company that allows us to some critical things on transmission and distribution that was necessary for us. So that's a smaller acquisition. That was meant to support our ongoing operations in North America.

And as far as the M&A, again, we're opportunistic out there. There's a good pipeline of great businesses that fit in our mold. There's nothing imminent or large in nature from our standpoint, but certainly, the markets there. And we've always been a company that's acquirer and we have a strategy, we'll stick to it.

Derrick Jensen -- Chief Financial Officer

Relative to size, it was a little less than about $50 million run-rate revenues.

Duke Austin -- President and Chief Executive Officer

And as far as cash allocation, we'll continue down the same path we have in the past, which is basically we look at acquisitions, stock buybacks, dividend. So we'll look at all of those to make sure that we're enhancing shareholder value.

Operator

Our next question comes the line of Adam Thalhimer with Thompson Davis.

Adam Thalhimer -- Thompson Davis -- Analyst

Duke, how did Stronghold do in Q1? And what's the outlook there for 2019?

Duke Austin -- President and Chief Executive Officer

I mean, I think we've talked about the record of our industrial services business, and we won't get into specifics on Stronghold. But in general, that segment, the industrial segment that's underneath them, they performed really well, better than our expectations. So we're really proud of that. We're really proud of kind of adding that service line to the pipeline and industrial segment.

So from our standpoint, we see them having a record year this year, and next year looks just as good.

Adam Thalhimer -- Thompson Davis -- Analyst

Good. And I know Atlantic Coast is not in guidance, but do you expect -- what's the latest thought on the potential for some activity this year?

Duke Austin -- President and Chief Executive Officer

We have very little expectation for Atlantic Coast this year. I think if you go back to what Dominion and Duke and others are saying, it's a 2020, 2021 type build, and we'll stick to their schedules.

Operator

Our next question comes from the line of Alex Rygiel with B. Riley FBR & Co.

Alex Rygiel -- B. Riley FBR and Company -- Analyst

A couple of quick questions here. You mentioned something about the Latin American telecom project. Can you go back through that? And how big was that? And is there anything that needs to come out of backlog? Or has that already happened?

Duke Austin -- President and Chief Executive Officer

No. The Latin America issue was a P3 type project in Peru. And so we're well along in the project. We're just -- it's been delayed for various reasons.

And in the country, it was necessary to kind of move this thing along is to go through some sort of arbitration at some point here, so we're working through that with the client. And I think we'll get it resolved and then move forward. We have a very small piece left to finish up the project.

Derrick Jensen -- Chief Financial Officer

Yes. It's only about $30 million expectation for 2019, so it's relatively small.

Alex Rygiel -- B. Riley FBR and Company -- Analyst

And then you also mentioned the $8 million charge in the industrial business of some sort. What was that again?

Duke Austin -- President and Chief Executive Officer

That was previously we talked about the processing facility and some liquidated damages. That was the same processing facility. We had some delays as far as getting it complete. And primarily, most of that is around that delay in liquidated damages on that project.

Alex Rygiel -- B. Riley FBR and Company -- Analyst

Great. Helpful. And then any another sort of macro views on the world of telecom? It seems like a number of telecom customers might have kind of pulled back capex in the first quarter here. Is that more of a technology shift to timing shift in your mind? Or is that a longer-term change in their views on how to spend capex?

Duke Austin -- President and Chief Executive Officer

Yes. Alex, when we look at it, I mean, I think it's necessary for the fiber build. We're starting to see some of that technology in 5G play into that undertaking. So as technology advances in 5G, you'll start to see some movement in fiber.

But overall, it's necessary for them to have big backbone, whether it's data centers or whatever it may be. So we continue to see quite elevated capital spends for the foreseeable future in the business. Certainly, timing moves around a bit. We're in good shape from our clients and the way we see it, but we're following it fairly closely.

We don't see a whole lot of fundamental change. I would say 5G is probably when it gets into the dense -- out of the dense areas and over into your community's servers and such, it will take longer as they use the electrical distribution system. I don't think that will be as easy as from a permitting standpoint as other things had been in the past. So that will be a challenge for the carriers to make sure that they're working with the utilities as they get into the electric distribution side of it.

Operator

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

Andrew Wittmann -- Robert W. Baird and Company -- Analyst

I guess my questions are probably going to be for Derrick. And I guess I wanted to just talk about two other chunks of DSO and/or working capital cash flows. Specifically, I think, Derrick, you mentioned that the retainage on Fort Mac had moved places on the balance sheet. Presumably, that means the cash is coming in soon.

I was wondering the size of that and what other contingencies need to be released or boxes need to be checked to be able to get the Fort Mac cash fully in the door.

Derrick Jensen -- Chief Financial Officer

Yes. It's a reasonably sizable balance. I mean, it's upwards of $90 million. It's moved from noncurrent to current.

There isn't that much necessarily related to from a timing perspective as a hold-up. It's just more of a kind of as you -- we reached effective administration this quarter, we've got to through the final process of administrative in getting those next balances. I would tell you that we expect all of those remaining balances to be received here during 2019, probably in the second, third maybe or part of fourth-quarter time frame.

Andrew Wittmann -- Robert W. Baird and Company -- Analyst

Helpful. And then I think you said that the PG&E receivable, the total size is $157 million. You're collecting a good chunk of that, but there's still going to be odd-$41 million that you did not comment on. What's the process for that? And how should we think about that as it relates to your cash flows, balance sheet and potentially income statement as that plays out?

Derrick Jensen -- Chief Financial Officer

Sure. Previously, we had given guidance that we expected that those balances would be beyond 2019. As it stands here today, for that remaining balance of noncontract assumption, we still have that belief that it will be beyond 2019. In fact, for that balance, we've actually moved it to noncurrent.

We'll be in line with the kind of a normal process of going through administratively and working with the customer to course through that level of collection. We still have no pause relative to our position. As it stands here today, we're not expecting that we will not receive full collection. At this stage, we'll just be working through from a timing perspective, working with the related parties.

Andrew Wittmann -- Robert W. Baird and Company -- Analyst

That's helpful. And then my final question, I guess, is just on your guidance, and I wanted to get, I guess, a different type of characterization of it. I mean, first quarter, I think you mentioned was ahead of expectation. You mentioned that in the electric side, you pulled some into 1Q with the strength here.

And then you announced this acquisition. So if you look at the overall guidance hike, how much of that is a change to the balance of the year? Or is this really just you did a little bit better in the first quarter and that sets you up? Just what's the impact on the balance of the year to your change in guidance?

Derrick Jensen -- Chief Financial Officer

Yes. I mean, relative to our own side of the equation and kind of looking it up from our modeling, I mean, we did have a nice first quarter, but we have upped from a revenue perspective on both pipeline and electric power, a larger portion of the electric power. So that is representing strength through the year. We see a higher degree of potential contribution coming to us in the third and fourth quarter due to the expanding base business, as well as some of the strong hardening work that Duke has made referenced to.

So from our standpoint, we see as much of the upside happening in the latter portion of the year against our own excitations versus just the contribution of the first quarter.

Operator

Our next question comes from the line of Nick Amicucci with UBS.

Nick Amicucci -- UBS -- Analyst

Quick question, just on as we look for the outlook of electric margins, I mean, they are pretty strong in Q1, kind of approaching the high end of the range. You guys have noted that communications will dilute those margins a little bit throughout the end of the year. And so we just want to try and get some color around the trajectory you have within the communications business and how that kind of shapes up throughout the end of the year.

Duke Austin -- President and Chief Executive Officer

Yes. I mean, when you look at the communications business, I think it continues to strengthen quarter over quarter. When you get into the fourth quarter, you may have some seasonality. But where we're working, I think, in general, we'll be fine there.

So we continue the strength and we'll be prudent about how we guide it, but we still believe that business is capable of margins at parity to what our electric segment is doing -- electric division is doing there in the segment. So we feel like it will strengthen throughout the year in the U.S., especially.

Nick Amicucci -- UBS -- Analyst

All right. Great. And then just shifting to the pipelines. You noted the Bakken and DJ as other basins within the U.S.

and maybe in Western Canada as well. So I just want to try and get some color on how active is the bidding in those regions? And what kind of -- I guess, how much of the pipeline portfolio do you think work in those regions and other non-Permian regions can account for moving forward?

Duke Austin -- President and Chief Executive Officer

Any time you have takeaway capacity and you have drilling activity, you'll start to see the midstream come back. As you'll see in the Appalachian, once we get some big takeaway pipe built out of the Appalachian, you'll start to see our midstream business come back underneath. So that's what you're seeing in Canada, in Western Canada, and it's also in the Bakken and DJ, is you're seeing drilling activity, and underlying that, you're seeing the midstream business start to come back. And we have a nice midstream business there in Canada that comes down into the Bakken region, so the activity there is robust.

We like that business underneath big pipe and it's pretty repetitive in nature. So we're working pretty hard at those regions and it shows.

Operator

Our next question comes from the line of Bill Newby with D.A. Davidson.

Bill Newby -- D.A. Davidson -- Analyst

Congrats on the great quarter, guys. I guess first one, on the pipeline side, Duke, I think you mentioned it briefly in response to Noelle earlier, but we've seen a couple of these Senate bills in Texas pop up regarding kind of eminent domain reform. I'm just wondering if you have any more thoughts on whether they have legs, I mean, particularly given that in this state, it's historically been, I think, relatively favorable from a permitting standpoint in the past?

Duke Austin -- President and Chief Executive Officer

I think Texas is fine. We'll continue to see a lot of infrastructure build here in the state. I don't think from a legislation standpoint, you'll see any change material. It's an energy state.

People want to build infrastructure. It's necessary. It's necessary to move it down to -- their LNG exports out of the Gulf Coast here. So we continue to see that build happening.

I don't think anything from a regulatory standpoint, in Texas for sure, will cause that to have any impact. I would say that the federal administration did make some executive orders that are intended to help us and help the permitting process and get certainty to FERC process. So with that, I do think, federally, you'll start to see some -- at least some certainty and what it takes to build pipe. And once you get it through FERC, it will be somewhat foolproof, not to say you won't get sued and such, but I do believe that you will prevail if you get it through FERC.

And so we like all the decisions and some of the executive orders that happened in the quarter. And we do think in the future, it will certainly help infrastructure and infrastructure builds in order to move gas and liquids down to the coast or wherever it may be.

Bill Newby -- D.A. Davidson -- Analyst

Appreciate it. That's helpful. And then I guess back on the communications side, I'm wondering if you do want to talk about what your kind of mix is in that business. I mean it sounds like you guys are developing capabilities both in wireline and wireless.

I guess, where does that mix stand now and where do you see it going over the next one to two years?

Duke Austin -- President and Chief Executive Officer

I mean, when you look at what we're doing now in the communications business, we're building backhaul fiber for the most part or ring -- fiber rings. We are doing some 5G work. But I would say for us, where we'll really start to see us getting a wireless business is when it starts to get in the distribution side of the business, electric distribution. It takes a different class of person to put it above the primary voltages on the distribution system.

So you will need kind of like an electric lineman to put that in the air. And as that happens, as they start to -- the carriers start to work with the utilities or the utilities even own fiber, 5G, per se, that will bode well for Quanta. I think it's not 2019. It's more like 2020 and 2021 and beyond.

That's where I think we really start to see our wireless capabilities come into play. But again, and I think when you look at what we're doing there, we're working on it methodically. We see -- we saw the permitting challenges. We worked through that.

I like where we stand. I like our cadence and how we're performing in the business. It's getting more profitable quarter over quarter as we get scale out of these offices, and our opportunities continue to increase.

Operator

Ladies and gentlemen, at this time there are no further questions. I would like to turn the floor back to management for closing comments.

Duke Austin -- President and Chief Executive Officer

Yes. I'd like to thank the men and women in the field for the safe performance in the quarter. They did exceptional, so we want to thank them. And thank you all for participating in our first quarter conference call.

We appreciate your questions and your ongoing interest in Quanta. Thank you. This concludes the call.

Operator

[Operator signoff]

Duration: 51 minutes

Call participants:

Kipp Rupp -- Vice President of Investor Relations

Duke Austin -- President and Chief Executive Officer

Derrick Jensen -- Chief Financial Officer

Tahira Afzal -- KeyBanc Capital Markets -- Analyst

Noelle Dilts -- Stifel Financial Corp. -- Analyst

Andrew Kaplowitz -- Citi -- Analyst

Kevin Wilson -- Credit Suisse -- Analyst

Adam Thalhimer -- Thompson Davis -- Analyst

Alex Rygiel -- B. Riley FBR and Company -- Analyst

Andrew Wittmann -- Robert W. Baird and Company -- Analyst

Nick Amicucci -- UBS -- Analyst

Bill Newby -- D.A. Davidson -- Analyst

More PWR analysis

All earnings call transcripts