Quanta Services Inc (PWR) 2004 Q3 法說會逐字稿

InfraSource 2004 Third Quarter Results Conference Call. Today's call will be hosted by David Helwig, Chief Executive Officer and Terence Montgomery, Chief Financial Officer. As a reminder, today's call is being recorded. Statements made on this conference call may contain forward looking statements based on InfraSource's current expectations about future events.

These statements generally relate to InfraSource's plans, objectives and expectations for future operations and are based upon management's current estimates and projections of future results or trends. These statements are subject to a number of risks and uncertainties and other factors that could cause actual results to differ materially from those described in the forward looking statements.

Listeners are cautioned not to put undue reliance on these forward looking statements, which are not a guarantee of InfraSource's future performance. For a detailed discussion of these and other cautionary statements, please refer to InfraSource's filings with the Securities and Exchange Commission. At this time, I would like to turn the call over to Mr. David Helwig, please go ahead, sir.

Thank you very much David, and good morning. Welcome to our third quarter 2004 earnings conference call. Joining me today is Terry Montgomery, our Chief Financial Officer.

Today we will discuss our third quarter 2004 results, recent acquisition and divestiture activity, the outlook for the remainder of 2004, and the development of our view of 2005. As you will hear, our results for the third quarter were essentially in line with our expectations, and each of our primary markets remain active.

Consistent with guidance given in our second quarter conference call, our revenues for the third quarter increased 11% over the second quarter, and EBITDA from continuing operations as adjusted increased by 11%.

As expected at this time of year, we have clear visibility in to revenues for the last quarter of 2004. Our acquisitions of EnStructure and Utili-Trax closed during the third quarter, and are now adding positively to our business results, strengthening our geographic presence, adding to our customer base, and expanding our service offerings. In addition, our recent divestiture of RJE Telecom, and our decision to divest of our modest underground utility locating business, further sharpens focus on our core businesses.

We are continuing to experience significant bidding activity and contract awards in each of our end markets. We continue to build substantial backlog for 2005 and beyond.

Our overall financial performance in 2005 will be driven by the conversion of backlog into revenues as well as the timing and scope of pending large electric transmission line projects that are not yet in our backlog. For the third quarter, as I indicated, our revenues indicated an increase to 11% compared to the second quarter 2004, and 22% compared to the third quarter of 2003.

EBIDTA from continuing operations as adjusted was $17.4 million for the quarter, an 11% increase over the last quarter, and a 2.5 times increase over the third quarter of 2003, excluding the effect of transaction related one-time expenses.

GAAP net income for the quarter was $5.1 million, compared to a net loss of $2 million last quarter, and a net loss of $22.2 million for the third quarter 2003. Income for the quarter would have been $5.6 million versus a loss of $200,000 in the prior year, excluding the effect of discontinued operations and transaction-related adjustments, despite $1.2 million after tax of additional interest expense during the third quarter, in connection with the purchase of InfraSource in September 2003.

We funded the recent EnStructure and Utili-Trax acquisitions with available cash, including funds from the settlement payment from Exelon, proceeds from the sale of RJE, and short-term borrowings.

Our current backlog of $992 million is up 14% compared to the second quarter 2004, and up 69% compared to the third quarter of 2003. This backlog includes $107 million from the recent EnStructure and Utili-Trax acquisitions. $166 million of our total backlog is expected to be completed during the fourth quarter, with the remainder to be completed in 2005 and beyond. I should also point out that the prior period numbers do not include anything for the recent acquisitions as that information is not available.

Our third quarter revenue breakdown reflects the concentration of our focus on the electric and natural gas end markets. For the quarter, 47% of our revenues were from Electric power, 40% natural gas, 9% telecom and 4% other.

This mix reflects our normal seasonal pattern of increased gas distribution and reduced electrical activities for this time of year. It also reflects a good balance of large customers with 13% from our largest single customer, 41% from our top ten customers, and 53% from our top 20 customers.

We continue to experience favorable markets for our services, and continued validation of our strategic focus.

Our electric power backlog of $385 million is up 30%, or $88 million versus the second quarter of 2004, and up 95% or $188 million versus the third quarter of last year. Approximately $28 million of this backlog is attributable to the recent acquisitions.

Electric transmission backlog of $167 million is up 6% or $9 million over the second quarter 2004 with the award of three new transmission orders in the third quarter totaling $23 million. We are experiencing continued opportunities in transmission work with key customers on a regional basis.

The status of our major ongoing transmission projects is as follows. The California Path 15 project is essentially complete. We're planning to turn over the project to the Western Area Power Authority shortly. So Bonneville Power, the Schultz-Wautoma project is well underway and progressing nicely. The Power-Up Wisconsin project for APC is being released for construction in segments. Substantial mobilization occurred at the end of the third quarter on the first of these segments. And the project is progressing although some segments are proceeding more slowly than anticipated due to permitting delays.

We continue to be bullish on the long-term prospects for transmission work. We've seen expanded regional plans being announced on a regular basis and some recent action on favorable federal legislation.

We've been tracking a number of additional large transmission project opportunities that could contribute to 2005. However, there continues to be a great deal of volatility in their timing and scope and we currently do not foresee any additional projects of this magnitude contributing to earnings during the first half of 2005.

Our other electric backlog of $218 million is up 57% or $79 million over the second quarter. As indicated during our last call we experienced a sizeable increase in our backlog of distribution work due to the award of $23 million of contracts by our strategic customers. Additionally, our recent acquisitions of Utili-Trax added $28 million of this type of work. As we've discussed before, generally these distribution contracts carry lower gross margin percentages than our more technically demanding substation and high voltage transmission work.

Bidding activity for industrial projects including IPP and refinery work remained strong during the third quarter with an increase in backlog of $29 million.

In our natural gas end market, our backlog of currently $438 million is up 8% or $34 million versus our second quarter and up 61% for $167 million versus the third quarter of 2003. This includes $79 million of backlog from the EnStructure acquisition and represents the addition of a number of strategic multi-year blanket agreements. The addition of these contracts to backlog offsets the seasonal decline in backlog that is normally experienced during this high activity time of the year.

In the telecommunications end market, our backlog of $149 million was flat versus the second quarter of '04 and is up 42% or $44 million versus the third quarter of 2003. Business in our core telecom markets is steady and we continue to evaluate and pursue new market opportunities.

Our strategy continues to be based on capitalizing on the favorable trends in the utility infrastructure market and our increased backlog reflects the benefits of that focus despite the uncertainty of timing for a number of large transmission projects.

Another component of our value building strategy is to make acquisitions that compliment our existing businesses and skill sets and to divest businesses that do not fit with this business strategy. In this regard, we closed on the acquisition of EnStructure and Utili-Trax during the third quarter. Their integration into our operations is progressing very nicely due to the advanced planning and diligence of the management of our underground business. We also closed on the sale of RJE Telecom during the quarter and realized an after-tax gain to book value of about $600,000. In addition, we classified a small utility locating subsidiary called ULMS as a discontinued operation. We are proceeding to divest ULMS, and we'll keep you informed of our progress.

Now I'd like to turn the call over Terry Montgomery, our CFO, who will discuss our financial results for the quarter, and our outlook in more detail. Terry?

Thanks Dave. As Dave mentioned, today we announced that revenues for the third quarter of 2004 increased $29.1 million to $164.2 million, compared to $135.1 million for the third quarter of 2003. This recent increase in revenues for the quarter was primarily due to additional aerial electric transmission work including revenue from the acquisition of Maslonka & Associates, Inc. and additional natural gas work, which was primarily organic growth, and also included one month of operations from the acquisitions of EnStructure and Utili-Trax. These increases are partially offset by an apparent decline in telecommunications work of $4.8 million, which actually increased when you consider that RJE revenues of $7.7 million were discontinued in 2004, but included in the predecessor entity results for 2003.

EBITDA for continuing operations for the third quarter of 2004 increased $33.7 million to $17.2 million compared to a loss of $16.5 million for the third quarter of 2003. EBITDA from continuing operations for the third quarter of 2004 included $0.5 million of severance and personnel expenses associated with the EnStructure and Utili-Trax acquisitions. And an approximate $300,000 credit to merger-related expenses. EBITDA from continuing operations for the third quarter of last year included $14.3 million of merger related expenses, associated with the acquisition of InfraSource Incorporated in September of '03, an $8.7 million adjustment to our insurance reserves for periods prior to 2003. Excluding those aforementioned items, EBITDA from continuing operations as adjusted was $17.4 million for the third quarter versus $6.5 million for the third quarter a year ago. This includes a number of operating impacts during the quarter that are roughly offsetting, including the impacts of severe weather, acquisition related costs, fuel cost increases and proceeds from a key man life insurance policy.

SG&A expenses of $16.2 million for the third quarter included $1.1 million of SG&A attributable to the EnStructure and Utili-Trax acquisitions, of which approximately half a million was severance and personnel expenses which are non-recurring. Also, during the third quarter of 2004, we reclassified approximately $300 million of capital stock and franchise taxes to SG&A from other expense, I'm sorry, $300,000.

We have reported GAAP net income for the third quarter of 2004 of $5.1 million, or $0.13, per share versus a net loss of $22.2 million, or $0.47 per share, for the third quarter last year. Please note that our prior year EPS is based on our predecessor entity results and share counts and is therefore not directly comparable. These results for 2004 included all on an after tax basis, $1 million of income from discontinued operations, including a $600,000 gain on sale of RJE, $1.4 million of amortization of intangible assets, resulting from purchase accounting under FAS 141, and approximately $300,000 in severance and personnel expenses associated with EnStructure and Utili-Trax. And finally, a $0.2 million credit for merger-related expenses. For 2003, they included on an after tax basis $6.8 million of loss from discontinued operations, $9.5 million of merger-related expenses and a $5.7 million adjustment to our insurance reserves for periods prior to 2003. Exclusive of the effect of those items, income as adjusted was $5.6 million for the third quarter of 2004 versus a loss of $0.2 million for the third quarter of last year. This despite $1.2 million of additional interest expense in the third quarter of '04, related to debt incurred in connection with the purchase of InfraSource incorporated in September of last year.

The reconciliation of GAAP net income or loss to EBITDA from continuing operations, and to EBITDA from continuing operations as adjusted as well as GAAP net income or lost income or lost as adjusted, is included in the table as contained in this morning's press release, and in our 8-K filed in connection with our press release. We are providing these reconciliations of unusual items affecting EBITDA and net income, in order to demonstrate how we as management evaluate the results of our operations exclusive of the effects of unusual non-operational items.

At the end of the third quarter, we had total backlog of $992 million, or 69% increase compared to $587 million of backlog at the end of the third quarter of last year, and a 14% increase as compared to $871 million of backlog at the end of the second quarter of '04. Backlog at September 30 includes $107 million of acquired backlog from Utili-Trax and EnStructure. However, backlog for those acquisitions is not included in the prior period balances. We classify contracts as backlog if we had been awarded the contract, and we have received the notice to begin work. This also includes an estimate of work to be completed under service contracts. As Dave mentioned, $166 million of this backlog is expected to be completed during the current year with the balance of $826 to be completed in 2005 and beyond. This level of backlog gives us considerable visibility into revenues for the remainder of 2004 and into 2005, even though it represents a shift in mix to lower margin work pending further development of large project transmission work. The breakout of our backlog at the end of the third quarter 2004 is as follows, $167 million electric transmission, $218 million other electric, $438 million natural gas, $149 million in telecommunications and $20 million other.

At the end of the quarter we had $6.7 million of cash on our balance sheet and approximately $53 million availability under our revolving credit facility.

Net cash flow provided by operating activities from continuing operations was a source of $7.4 million in the third quarter. Our accounts receivable and costs and estimated earnings in excess of billings have increased to our seasonal peak due to third quarter operations, and are also higher due to our third quarter acquisitions. We expect that net cash flow provided by operating activities from continuing operations will be positive during the fourth quarter of 2004 through the combination of the seasonal pattern of working capital for our business and also the completion of certain projects that will allow for the collection of our invested working capital including project retentions.

Capital expenditures were $5.4 million for the quarter compared to $6.8 million for the third quarter of last year. We believe that our fleet and equipment are adequate for our current operations and we regularly evaluate our backlog of potential future opportunities including transmission work against the mix and availability of equipment in the field.

We had $28 million in letters of credit outstanding, primarily to secure our insurance and bonding programs and had drawings of $4 million under the revolving credit facility at the end of the third quarter. The revolver drawings were used to finance in part the acquisitions of EnStructure and Utili-Trax. We are currently in compliance with the covenants under our credit agreement.

Concerning our outlook for the fourth quarter of 2004 compared to the third quarter, we expect that revenues will be 5 to 7% higher due to the effect of the EnStructure and Utili-Trax acquisitions, partially offset by the seasonal nature of our business.

Our gross margin percentage is expected to increase somewhat, as a result of the contribution from the anticipated settlement of several open contract claims during the fourth quarter. However, the timing of those settlements is such that we may not be able to recognize this revenue until 2005, which would result in a gross margin percentage lower than the third quarter if that occurs.

SG&A expenses will increase by approximately $1 million, primarily due to our third quarter acquisitions.

Depreciation will increase by approximately 15%, due to the acquisitions, and amortization of intangible assets is expected to be approximately $2.1 million, reflecting the continued reduction in acquired backlog.

Interest expense will be approximately the same as it was in the third quarter, but we will benefit from approximately $1 million in interest forgiveness from the early retirement of the Exelon note.

Our projected effective tax rate for 2004 is 40% and our projected weighted average diluted shares outstanding is approximately $39.8 million for the fourth quarter.

For 2005, we anticipate continued growth in each of our electric, natural gas and telecommunications end markets as indicated by this steady growth of our backlogs, with the level and quarterly profile of earnings dependant on the timing and scope of pending large transmission projects.

We are in the process of preparing our budgets for 2005 and we anticipate that we'll gain better visibility into the plans for these projects towards the end of the fourth quarter. This now concludes our formal presentation and we'll open up the lines for questions.

[OPERATOR INSTRUCTIONS].

We'll go first to Lorraine Maikis with Merrill Lynch.

Hi, this is Gina Gordon calling in for Lorraine, how are you?

Good morning Gina.

Can you shed a little more insight on the gross margin situation, I thought we were kind of expecting higher gross margins toward the end of the year, and I understand you were talking about some situations, causing them to maybe be lower this year and higher next year. Can you give some more insight on that?

Actually, you'll recall that we did indicate an expectation for the fourth quarter of higher margins. And we indicated that although that was not a typical seasonal pattern for the underlying business, with the third quarter being typically the most strong, we expected that to come as the result of the settlement or closure of a couple of projects.

And as Terry indicated, the final settlement at the end of one of our large contracts. We're in process on it and it may not close in the fourth, we may not settle it finally in the fourth quarter. So it's just a matter of timing, nothing particularly controversial or contentious, but nevertheless an issue of timing of when we'll actually be able to recognize that.

OK, and which project was this? Would you be able to say that?

Actually, we'd prefer not to.

OK, that's fair. What is in your other income line?

The other income for the third quarter, there was $1 million of proceeds from a key man life insurance policy.

OK, and then SG&A, can you just give us some more insight on that as well, I think we were expecting it to be a little lower this quarter?

We had previously said $14.7 million exclusive of the acquisition.

Right.

So including the acquisitions we had $1.1 million of effect from the purchase of Utili-Trax and EnStructure. About $600,000 of that was continuing expense and $500,000 related to severance and retention payments made to hire the employees and dismiss some others.

OK.

And then, there was approximately $300,000 that was previously projected to be in other expense that we reclassified to SG&A related to franchise taxes.

OK, thank you very much.

Well go next to Sanjay Shrestha, First Albany.

Great, good morning guys. Just a couple of quick questions here. First one, given the commodity prices, I understand that it's a lot of pass through components for you guys. But could you potentially see that being an issue from the profitability standpoint in the fourth quarter of this year?

Sanjay, we believe that we have that fully baked into our forecast.

OK.

We have quite a bit of fuel expense for example, probably stands out as the item with the largest impact which as, with everybody else that has a fleet of equipment, is up substantially. But we have that baked in and moderate effects also baked in from material prices. But as you know, we generally don't take the risk on those.

OK and also, kind of a little update on, you guys were obviously doing the transmission line related work on the Path 15, and there's been a lot of press around it that it's under budget. I was wondering, all the substation-related work has been completed on that as well because you guys wind up working on some of the substation related work for that?

It's our understanding that the substation work has been completed. There is a time table to place the line in service within the next two weeks.

OK, perfect, perfect. And another thing, I was hoping to get a little more color on number one, how much of that backlog do you see being translated into the revenue in 2005 and two if you could also update on the BPA and the Power-Up Wisconsin project.

I don't have the spread on 2005 on the backlog right here. The status on the Schultz-Wautoma, like I indicated is progressing very nicely. We were able to substantially mobilize on that project early, as Path 15 reached substantial completion this summer. And it's progressing quite nicely. We always hesitate to say 'ahead of schedule' in case it's not done. But progressing very nicely, ahead of any established schedule to date.

Power Up Wisconsin as I indicated very briefly is being released in segments for I guess visibility and manageability by the, from the customer side. We are actively working on the first of those segments, and the rest are phased out over the next year and a half, as a matter of fact, 2005 and into 2006, into mid year 2006.

OK.

So it will, it appears that it will proceed on a very measured pace as opposed to Path 15, and Schultz-Wautoma, which we've been able to accelerate quite rapidly as we've been able to make as rapid a physical progress as we were able to make as you were aware.

OK, that's great. And one last question. Any opportunity that you see that the recent talk about the fiber to the premise and do you see that potentially having impact on some of the work that you do on the dark fiber side?

Yes, let me break that in two pieces. We are doing a fair amount of fiber to the premises work on a locally contracted basis. Off the top of my head I'd estimate there's probably about $20 million of that kind of work that's been added to backlog within the last quarter.

OK.

And what was your other question Sanjay?

Do you sort of see that having any sort of impact on your other fiber related telecom work?

No, our dark fiber related work is for a very different user community, the ultra high bandwidth users. And not amenable to that. We do not pursue with our dark fiber local, residential and small business hook ups.

Got it, that's great, that's all for now. Thank you, guys.

Sanjay, this is Terry, on the question on the backlogs for 2005, as I mentioned, we're doing our planning for 2005 right now. But the current estimate is about $440 million of that backlog would be in '05.

That's great, thank you.

We'll go next to Jeff Beach, Stifel Nicolaus.

Yes, I have a couple of questions regarding your acquisitions. First, I may have missed it but how much revenues did you get from your acquisitions in the third quarter and stripping out all one time items, did the acquisitions contribute at all to your earnings?

Jeff, it was approximately $6.6 million of revenue which will all be closed on early September, so it was only one month worth of activity. And with the effect of the SG&A and some of the one time items I mentioned it was about break-even based on all of that.

We hoped for a little earlier closing which would have given us some net contribution to the quarter. But like Terry said, as the timing worked out, break-even net of those deal related expenses.

Break even net of those?

Yes.

So you made money before?

Sure.

And second, are there any synergies with particularly I guess the EnStructure on the natural gas side going into 2005? Can we look, or is the market there improving, can we see higher margins in natural gas in '05 versus '04 because of the market, because of your acquisitions or your position.

We have, as you'll recall, we've been very careful in that market. We have seen the market firm up and have been thus far quite successful improving our margins through performance initiatives as well. So we anticipate some moderate improvement in margins and the gas distribution business as a result of the synergies, operational improvements and firming market conditions.

And the last question, does EnStructure generate higher margins in natural gas than your existing businesses?

We really don't break it down for disclosure that way.

No?

We're looking, as I indicated for modest expansion of margins.

All right, thank you.

We'll go next to Tom Ford at Lehman Brothers.

Good morning, Tom.

Thanks, good morning. Terry, just going back, I wanted to make sure I heard you right. For the fourth quarter you said the revenues were going to be up 5 to 7% from 3Q?

Correct.

OK, and then on the last call, Dave, you or Terry had said that you thought that the margins in the second half of '04 were going to look somewhat similar to the average of the first half. And just wasn't sure how to take some of your comments. But assuming that the settlements of the projects finishing, assuming that that occurs in the fourth quarter, does that still hold then?

Yes it would.

OK, so, net we don't really see much I guess in the way of much change in that respect then?

That's correct, it really all hinges on the timing of that settlement.

OK, and one thing I wanted to go back to, Dave, was on the last call, you had talked about or highlighted some of the issues in terms of outlook revision. And one of which was project delays I think in the gulf area and then two was the translation of Power-Up Wisconsin into actual revenue earned. And just wondered if you could go back over those two things in detail if you could or to the degree that you can talk to them.

Sure, I'll do it at summary level. First of all we did have during '04, in the first half of the year, delays in project timing throughout the Gulf, principally our petrochemical customer base in the Gulf. Actually in the second half of the year, that has turned quite nicely and our backlogs there were building as reflected in the numbers that are sighted.

In fact, building very nicely and very strongly at this point in time. Following the budget and planning cycles of our customer base, we would expect that to continue to firm through the first quarter of '05. So that market is in fact firming up quite nicely. If I remember correctly we talked at the last quarter about the, even articles that have been written in the Wall Street Journal, about the refiners being hesitant to make commitments to invest pending, seeing what happened to oil prices.

And I guess they're pretty satisfied, they're going to stay relatively high, they're making substantial commitments that are proceeding. Secondly, Power-Up Wisconsin, I think it would be safe to say that our expectations for revenue burn on that project, will be pretty levelized over the next year and a half as the project is released in segments.

And I contrast that to the Path 15 and Schultz-Wautoma, where the entire project was contracted and released at once. And we were able to expedite completion as rapid a pace as we could deploy equipment and resources and as weather and conditions would allow. But we were able to accelerate revenue recognition on those projects. We will not be able to do that the way the Power-Up Wisconsin project is being released.

OK.

So good news and bad news. We can't accelerate it, is the bad news. The good news is that makes it pretty steady and level for the next year and a half.

Right. And, wasn't the timing that Power Up, wasn't the original timing that you talked about for Power-Up Wisconsin extending into the first half of '06 also?

Oh yes.

Yes, OK.

And in fact looks like they're talking about later in '06 for completion if not at the beginning of '07 at this point.

OK, and then did you guys mobilize at the time that you thought in the third quarter?

Yes we did.

OK, so that was on, that was on time if you will in terms of 3Q performance?

Yes, I don't recall off the top of my head the number of segments that they're going to release, basically sequentially. But the first of those segments we did mobilize in the third quarter and very substantially underway.

OK. Did you guys have any impact at all from the hurricanes?

Yes, a couple of pieces to the answer to that question. First of all, we are not a large player in the distribution business. So we don't have a large number of distribution crews to deploy. Secondly, the ones that we do have, we keep full time employees.

So the 40 or so crews that we were able to get released by the principal customers for a number of weeks did go Florida and work some extended hours. But any incremental benefit to our financials is just that. It's the modest increment associated with additional work hours as opposed to a baseline work schedule.

Right.

The largest impact that we are experiencing from the hurricane is what I would call missed opportunity in that there remains a substantial national shortage of distribution linemen due to the ongoing level or work activity in the states that were hit by hurricanes so severely in their rebuild activities.

So there is a shortage of linemen currently where we have a number of normal base contract engagements that we could staff higher and increase our revenues on if there were distribution linemen that were available. They are not available and in fact we have resorted to importing crews from different parts of the country and from Canada in order to meet that increased demand. And we are still short of being able to man all of these requests that we have.

OK, OK, OK, and one last question here was with respect to the, you guys mentioned that you were tracking some fairly large awards. I think in the past you've said that the timing on those generally comes sometime around year-end? Is the, you had kind of expressed a question as to the timing on it in terms of when the work actually occurs.

Is that just because you are waiting on sort of the year-end award time frame or is it because there are lots of moving pieces so you're just not sure when that work would be awarded?

Actually, it depends on a particular end market and the type of work. Our gas distribution work, for example, is the one that is the most seasonal in terms of pattern of bidding and award where that is done over the winter months typically and awarded towards the end of the first quarter, would be the typical seasonal pattern of it. So it's more or less at a low at this time of year, you're heavily into execution and finishing off the year's activities, not at bidding cycle right now.

OK.

In contrast, our refinery petrochemical work is, follows more a fiscal year budget cycle and, as you would anticipate, given that is firming up right now with budgeting plans and awards into the fourth quarter here and then into the first quarter. And the large record transmission projects on the other hand are kind of a, to use a very unsophisticated term, big lumps in that, that do not have a standard calendar budget cycle.

So they are less predictable in terms of their timing. We do track those as you know quite closely. We have a view of our markets and a number of large project opportunities that we see. And we track them very closely. We have experienced some movement in those plans over the last quarter. And that's what's caused us to say well, gee, the timing is a bit uncertain as to the very large projects in transmission space and when they would contribute to '05.

OK, OK, great thank you.

We'll go next to Rich Wesolowski with Sidoti and Company.

Good morning.

Good morning Rich.

Could you guys give us an estimate as to the percentage of your electric backlog that's wrapped up in distribution work and maybe give a prospect on how that could effect '05 consolidated margins? If you could kind of compare it to historical average that would be helpful.

Well, I think it would be probably fair to say that roughly compared to prior years our distribution backlog is probably up about the increment of the additional orders that we sighted. What was that, $23 million I think I said? That's a rough approximation.

OK, do you guys cite this is a key factor in what you expect from margins next year?

Margins go to mix more strongly for us, and mix more than the type of work than anything else. And certainly if that were a $23 million of higher margin substation and transmission work, that would increase margins. This being the lower margin distribution work, it would, relatively speaking, tend to dilute margins.

OK, would you expect further awards that you get in electricity would also be of the same mix that you saw in the third quarter?

No, we do not have a large market presence or concentration in distribution work. As I've indicated before, we really perform that work only for strategic customers as part of a much larger basket of services, if you will, that we're providing to those customers. So that is not an area in which we pursue growth in general.

OK, you also just had a little blurb on some federal legislation changes that you guys saw. Could you expand on that?

Yes, sure, that's an area that, of course, given all the election year controversy and politics has kind of been on hold for the last nine months or so with the energy bill. Mid year there was an attempt to put most of the provisions of the energy bill that related to transmission into corporate tax bill.

That didn't happen, there were various incremental attempts at legislation. Most recently, the renewable energy legislation that renewed the funding for wind and solar and developments like that also included provisions related to transmission assets. Being very summary level about those provisions, it provided basically tax benefits to utilities that would choose to sell their transmission assets.

It allowed, provided that the gains on the sale, the capital gains on the sale of those assets could be spread over eight years rather than recognized all at once. There's a little more complexity to it as there usually is with legislation but that's the real high level summary. That is the first real tangible legislation that's been passed that is favorable to the transmission business. There's been a lot of press and speculation about what else is pending and the positive sign that even that represents over the last couple weeks.

OK, thanks a lot.

And just a reminder, star one for questions. We'll go to John Rogers, D.A. Davidson.

Good morning.

Good morning, John.

Couple of quick things, and Terry, I know you said this and I apologize, but can you give us the backlog by segment again?

Sure.

I just couldn't write it quick enough.

Sure, electric transmission is $167 million. Other electric, which would be substation, distribution, et cetera and industrial is $218 million. Natural gas $438, telecommunications $149 and other of $20.

OK, great. And then, the other question I had was in terms of major projects, Dave, you said you didn't expect any major project awards in the first half of 2005? Was that right or you don't expect to be working on any additional major projects?

The latter. We don't expect them to contribute during the first half right now. We look at the timing of request for proposal, bid, award and mobilization and of course, have to factor that timing into our projections of revenues and earnings.

Well, I guess what I'm wondering then and I know you're going to give specific '05 guidance later but, as we look into, especially the winter quarter, if you don't have the Path 15 work, and normally I assume that's a seasonably more difficult period, that first quarter, do you end up with weaker revenue, year over year then in the first part of '05 or is that not necessarily the case?

Well that, during the first quarter of '04, we were going like gangbusters.

Right.

On Path 15, as you're well aware. So we have the Schultz-Wautoma line under substantial progress and relatively speaking going like gangbusters on it as well. But probably not at the same level that the Path 15 project was during the first quarter. So on that segment of work, it will have less revenues, but that's not the whole composite of course.

I will also add we have the acquisitions of Utili-Trax and EnStructure and we've got some organic growth besides that. So, the revenues may not be all that different but it would be a different earnings profile due to the mix.

OK, I just wanted to make sure it wasn't, because I didn't know how much Path 15 was contributing.

Yes, Terry answered it more fully.

OK.

Yes, the transmission revenues might be down but not overall revenues.

OK, great, and then on SG&A, Terry you made the comment that in the fourth quarter it should be up by about $1million. Is that an approximate then, for a run rate now that you've got those acquisitions fully embedded?

Yes, it would be.

So somewhere, a little over $17 million a quarter?

Right, and that includes us working on our SOX effort starting the fourth quarter.

OK, OK. And then, just the last thing. David, I know that sometimes you've given us comments about some of the projects that are out there or areas. And I guess this goes out more well into '05 and beyond. What are the particularly active markets in terms of proposal activity and where do you expect we'll start to see some more projects being put up for bid or award?

I presume you're asking specifically about electric transmission?

Yes, sorry, but if there's anything else feel free.

Well, let's, before we go to electric transmission, let's talk more generally. Industrial markets, particularly in the refining arena are quite strong right now. A lot of it being fueled, excuse me, I shouldn't say it that way, a lot of it coming from clean fuels initiatives and expansion of capacity. So others that provide services to the petrochemical industry have noticed that increase and strength in the market as well.

So that's very substantial for us. It's developing as we wanted it to last spring right now. With regards to electric transmission, I indicated in my remarks that on a regular basis, there were regional expansion plans being published. Within the last quarter, specifically I can recall off the top of my head that New England ISO published a rather voluminous expansion plan for their entire transmission system up there that has quite a bit of work over the next five and 10 years, both of those horizons laid out.

There's a group out in the west called RMATS that also published its expanded plan in the period and in SERC, Southeastern region, Southeastern Reliability Council similarly has published just within the last quarter their specific plans on expansion of the transmission grid.

And then ERCOT has a standing process of building it. So Jeff, it's hard to pick one particular area and single it out. I just bid right off the top of my head, I'm sorry John, I just bid off the top of my head, New England, the Southeast and the West and Texas. And if I thought I was a little quicker, I probably remember one in the Midwest as well.

But that doesn't come to mind as being in the last month or so. So it is quite an active market in terms of planning for substantial additions, incremental additions to the transmission grid.

OK, great, thank you.

You're welcome.

Again, just as a reminder, that's star one for questions. And at this time I'll turn the call back over to Mr. Helwig for any additional or closing remarks you might have sir.

All right, thank you very much, thank you all for joining our call today. I hope we've been able to provide information that's useful to you about our ongoing business and we continue to be very pleased with the focus of our business strategy and the activity in each of our end markets. We look forward to talking with you in our future calls.

Thank you everyone for your participation in today's conference, you may disconnect at this time.