Quanta Services Inc (PWR) 2005 Q2 法說會逐字稿

Welcome to the InfraSource 2005 second quarter results conference call. Today's calls 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 me contained 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 on management's current estimates and projections and 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 David Helwig. Please go ahead sir.

Thank you very much. Ladies and gentlemen, welcome to our second quarter 2005 earnings conference call. Joining me today is Terry Montgomery, our Chief Financial Officer. Today we will discuss our second quarter 2005 results, including an update on the project loss that we announced in June, and our outlook for the third quarter 2005. As you will hear, our results were generally in line with our expectations and prior guidance, except for the effect of that previously announced project loss. Each of our primary markets remains active, and the recent passage of comprehensive federal energy legislation should contribute favorably to our long-term growth.

For the second quarter, our earnings per share were a loss of $0.04 per diluted share, reflecting our operating performance as previously forecasted, absent $0.14 a share of contract loss related to that underground electric utility project. Also, our revenues were $232 million, 62% higher than the second quarter of 2004. Each of our 3 primary and markets of natural gas, electric power, and telecommunications grew substantially during the quarter. Electric power was up 49% to $122 million, even though there was a substantial contribution from Path 15 in the prior period. Natural gas was up 76%, to $76 million, partially attributable to our acquisitions of Enstructure and Utili-Trax during the past year, and Telecom was up 97% to $25 million.

Our EBITDA as adjusted was $8.6 million, reflecting our current mix of work, our normal seasonality, and including the pre-tax loss of $8.5 million on the underground utility construction project. Our business strategy continues to be based on capitalizing on the favorable trends in the utility infrastructure market, and our revenue growth and backlog reflects success in this regard. We've experienced heightened activity among our utility customers, seeking the means to accomplish increased workloads. As we've stated before, our results will continue to reflect somewhat lower margins due to our mix of work, and we may experience periodic declines in backlog, absent large project awards, and due to the normal seasonal cycle of our work in some of our operations.

Our changes in backlog for the second quarter were as follows. Our electric power backlog of $266 million, is down 10% or $31 million over the second quarter 2004, and down $57 million over the first quarter of 2005. Our electric transmission backlog of $119 million is down 25%, or $39 million, over the second quarter of the prior year due to the substantial progress in that prior period on Path 15, and our continued progress on the Bonneville Power Schultz-Wautoma line, and other transmission projects during the period.

The Schultz-Wautoma project continues on schedule for completion in the fourth quarter, and is currently approaching 94% complete. We've substantially completed the first segment of the Arrowhead to Weston line, a.k.a. the PowerUp Wisconsin project, and are currently mobilizing on the next 2 segments of that project following receipt of permits and an appeals court order authorizing work to proceed. I might add that this week in Wisconsin legislation was passed that will streamline prosecution of this project, and other transmission projects in the state. That legislation is expected to be signed by the Governor next week.

We continue to be awarded small to medium-sized electric transmission contracts on a regular basis. Since our last earnings call, in fact, we've been awarded 12 additional scopes of work in Georgia, Illinois, Louisiana, Nevada, Idaho, Delaware, New Jersey, Washington, and Wisconsin, with an aggregate contract value of about $49 million. We are tracking an increasing number of large transmission project opportunities, and bidding activity remains extremely strong in this area. We do anticipate being awarded a number of these projects. However, as always, there remains a bit of uncertainty regarding their timing and scope.

The other electric power backlog of $147 million is up 6% or $8 million over the prior year, and down 13% or $22 million over the first quarter of this year. This reflects the completion of significant distribution work and work scopes at 3 powerplants and also recent awards of project is in Texas, California, and Illinois, primarily due to the strengthening in the industrial and petrochemical markets compared to last year at this time. In natural gas, our backlog of $370 million is down 9% or $35 million versus the prior year period, and down 5% or $18 million versus the first quarter of 2005, reflecting seasonal burn and the cycle of our MSA renewals and notwithstanding a new $36 million MSA award.

In telecommunications, our backlog of $190 million is up 28% or $41 million versus the second quarter of 2004, and up 2%, or $4 million versus the first quarter of 2005. This is due to additional awards of dark fiber contracts and expansion of fiber capacity for existing customers, and additional fiber to the premises work with Verizon. We believe that the long-term prospects of our core electric end market are especially bright based on the continuing announcements of regional transmission expansion plans, and given the recent passage of the Federal Energy Bill that was signed on Monday, in fact, by the President. We recently had the opportunity to participate in a transmission and distribution investor conference in New York City. Our presentation materials from that conference are available on our website. You will find in these remarks an overview and summary of recently announced transmission development plans on both the national and regional level.

With regard to the Federal Energy Bill, it does include many provisions that should be favorable to our business. By provisions with a direct bearing on the electric transmission distribution business, include repeal of the Public Utility Holding Company Act, mandatory electric reliability rules with FERC oversight and enforcement, granting FERC backstop authority for transmission lines citing, establishing the Department of Energy as a federal agency to coordinate federal permitting of transmission lines, requiring FERC to provide transmission incentives and assure cost recovery for reliability investments, reducing the depreciable lives of electric transmission lines, and extending a tax provision around companies that sell their transmission access to defer the gain on their sale.

They are the principal drivers that we expect to see beneficial impact from, but there are a number of other provisions as well that will be expected to have a beneficial impact, although perhaps less directly, and less obviously. Those include reducing the cost recovery period for powerplants pollution control equipment investments, extension and modification of the renewable energy production credit, expense treatment for refinery investments, accelerated depreciation for natural gas distribution lines, granting LNG citing authority to FERC, and various provisions for other forms of generation, including clean coal and nuclear.

We do believe that this comprehensive energy legislation will serve to accelerate the already growing rate of utility infrastructure investment, and we are already seeing tangible signs of an influx of capital into the sector. Additionally, FERC recently issued a policy statement indicating their willingness to consider independent transmission company proposals, which have market participants as passive minority equity owners. This should serve to provide greater like stability for utilities to pursue ITC formation and thereby seek incentive rate treatment for transmission investments.

We have recently added a number of experienced senior executives to our rank, including David Watts from Granite Construction as a new Director, and Walt MacFarland as Executive Vice president for our electric businesses. We've also modified our organizational structure and changed roles and responsibilities of a number of executives, in order to enhance our ability to capitalize on these market opportunities.

An important component of our valued building strategy has been and continues to be to make acquisitions that complement our existing businesses, and to divest those businesses that do not fit within our core strategy and can be monetized. We will continue to pursue selective acquisitions that are immediately accretive and that will contribute directly to our strategic objectives.

On the divestiture front, we closed on the sale of 2 small units, ULMS and ESI that were not core to our operations on August 1st. These units were sold for approximately $7 million combined. They had revenues of $10.4 and $8.5 million for 2004, and 6.4 and $5.0 million for the 6 months ended June 30th respectively, and were not contributing significantly to earnings. Before turning the call over to Terry Montgomery, our CFO, I'd like to spend a few minutes discussing the contract loss on the underground utility construction project that we announced in June.

The project at issue involves the construction of civil infrastructure for a 230kV underground electric transmission line. We are a subcontractor working on 2 of the 5 segments of this project. The segments are approximately 8 and 5 miles long respectively. Problems with the project surfaced during our regular business reviews in early May, coincident with the unexpected resignation of the Project Manager. We assembled a team of senior managers from throughout the Company, and retained outside consultants to assist in our valuation of the situation and development of a containment and recovery plan.

Our initial estimates of the project loss ranged from $6 to $8 million at the completion of their initial review in early June. Our current estimate is slightly above the high end of that range at $8.5 million assuming collection of current and projected claims. Our investigation revealed that the project loss was due primarily to lower than expected productivity, higher than anticipated material costs, and unforeseen project delays as a result of poor bid preparation and a number of execution challenges.

We believe that this contract loss situation is not endemic to our organization and have taken a number of actions to further enhance oversight and controls, including a number of personnel changes, reinforcement of project management processes and control expectations, formalization of critical review and approval steps, and communication of lessons learned. Our management team is resolved to take appropriate actions to improve our performance as we move forward and learned from this unfortunate event.

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

Thanks. As Dave mentioned, today we reported a net loss of $1.4 million or $0.04 per diluted share for the second quarter of 2005 versus a loss of $2 million or $0.06 per diluted share for the second quarter last year. As indicated in the table accompanying our press release, the loss as adjusted was $0.2 million for the second quarter of 2005, including the after-tax loss of $5.3 million on the previously announced underground utility construction project versus net income of $3.9 million for the second quarter of 2004.

Revenues for the second quarter of 2005 increased $88.4 million to $231.7 million compared to $143.3 million for the second quarter of 2004. This increase in revenues for the quarter was due to growth in each of our electric power, natural gas, and telecommunications end markets, including organic growth and the acquisitions of Enstructure and Utili-Trax. This growth was partially offset by a decline in aerial electric transmission work, primarily due to the substantial progress recognized in the Path 15 projects during the same period last year.

EBITDA from continuing operations for the second quarter was $8.5 million, compared to $9 million for the second quarter of 2004. Excluding several items as highlighted in the table accompanying our press release, EBITDA from continuing operations as adjusted was $8.6 million for the second quarter, including the $8.5 million pretax loss on the underground utility construction project, versus $15.3 million for the second quarter a year ago.

The reconciliation of net loss to EBITDA from continuing operations and to EBITDA from continuing operations as adjusted as well as net loss to income or loss as adjusted is included in the tables contained in this morning's press release and in our Form 8-K filed in connection with press release. We are providing the previously mentioned reconciliation with unusual items affecting EBITDA and net income in order to demonstrate how we as management evaluated results of our operation exclusive of the effects of unusual non operational items.

SG&A expenses for the second quarter of 2005 were 7.7% of sales compared to 10.7% in the second quarter of 2004. This is despite the impact of our acquisitions during 2004, the increased cost of operating as a public company, and expenditures for our SOX compliance efforts. At the end of the second quarter, we had total backlog of $844 million, for a 3% decrease compared to $871 at the end of the second quarter of 2004, and 8% less than the $922 million of backlog at the end of the first quarter of 2005.

We classify contracts as backlog if we have been awarded the contract and we have received notice to begin work. Our backlog includes an estimate of work to be performed under master service contracts. Approximately $270 to $290 million of this backlog we expect to be completed during the balance of 2005. This level of backlog gives us visibility into revenues for the remainder of the year, even though it represents a shift in mix to lower margin work pending further development of last project transmission work. At the end of the second quarter, we had $4 million of cash on our balance sheet, and approximately $39 million of availability under our revolving credit facility.

Net cash flow consumed by continuing operations is $12.1 million in the second quarter due to our seasonal outdoor operations and also due to an increase in work volumes with one on our largest customers. We expect that net cash flow from operations will not turn positive until later in the year, consistent with our typical seasonal profile.

A further amendment and waiver to our credit facilities was not required with our banks following the amendment that we obtained from them on June 10. We were able to include the underground project loss in our covenant calculations as an extraordinary, and unusual in nature. We are currently in compliance with all of our covenants under our credit agreement.

Capital expenditures were $6.3 million for the second quarter compared to $6.4 million for the second quarter last year. At the end of the second quarter, we had $28 million in letters of credit outstanding primarily to secure our insurance and bonding programs. We had drawings of $18 million under our revolving credit facility, which were used to finance seasonal working capital needs.

Concerning our outlook for the third quarter of 2005, we expect that revenues will range from $195 to $205 million and earnings per share will range from $0.14 to $0.17, based on the current mix of work in our backlog, including settlement of project claims associated with Path 15, and excluding amortization of intangible assets and a gain on sale of ESI. As previously indicated, we currently expect a positive resolution of our Path 15 claims during the third quarter, although the timing of these proceedings is not within our control.

We are currently bidding on a number of electric transmission projects, and believe we are well positioned to capitalize on these opportunities. However, as usual, the somewhat lumpy nature of these projects makes it difficult to forecast when or even whether these bids will contribute to earnings. This now concludes our formal presentation and we will open up the line for questions.

[Operator Instructions].

And we will take our first question from Tom Ford with Lehman Brothers. Please go ahead.

Good morning.

Hi Tom.

Just a few questions here. Dave, just wanted to go over the backlog trend because you had referenced seasonality and I know that there were some moving pieces in second quarter of 04 last year. That's I think more so what I was curious about because you know from 1Q to 2Q last year we saw an up tick and sequentially here we've seen a move down. I was just wondering if you could kind of talk through some of that? And then also, I was curious about the five projects that you had highlighted in the release as being awarded after the end of the quarter. If you could just kind of discuss those in terms of size magnitude?

Okay. First of all, you are quite right, there's quite a few moving parts in the net backlog numbers, as you know, and a little bit hard to sort out trends there, but most importantly one of the dominant issues in '04 was the rate at which we were burning off the Path 15 project, so that really was a significant factor in what was going on in that quarter. We had just a tremendous amount of work that we were blowing through there. And maybe you can be a little more precise at what you are trying to equate.

Well, I mean in the electric side I had overall backlog going from $285 in 1Q to $295 or so in 2Q, so it actually was incrementally up, and this is in 2004. And then in '05 here we've seen kind of a different trend, and so I was wondering if you could just really talk to that.

It's really pretty difficult. We had a very big season, as you see, in revenues here, in this second quarter, and we just burnt an awful lot of work.

Okay.

Hence I can't get below that level, I don't believe. Maybe John or Terry, if you -- Terry, if you have any additional information there in front of you?

We added quite a few last year industrial electric projects, and we saw a lot of burn of that this year. It's just really the timing of awards versus when we are burning things off. You know, additionally we did a whole lot of work in electric distribution in the second quarter of this year, some of which is coming out of the Exelon volume agreement. So, you'll see a downward trend for that piece until we get renewals there.

So is it ...

...On the natural gas side, Tom, some of it relates to the timing of the role of our MSAs. They are 2 and 3-year contracts. We had more of them up for award last year than we did this year, so you see incremental burn this year because it's just been the cycle of when the 2 and 3-year contracts are awarded.

Okay. Okay. And on the electric side though, it seems like you guys feel -- it's not as though you feel -- it doesn't sound like there's any concern in your commentary that you know we are seeing any kind of dip here in terms of the award activity or spending trends on the part of the end markets.

No, that's correct. In fact, as you noted, we indicated a number of awards that occurred just after the end of the quarter, and we indicated here that more -- and since that time pretty substantial, and that's a matter of cutoff in the timing of awards I guess.

Okay. And then Dave, do you still think -- I know you had made to comment that you still -- that you -- I was wondering if you could talk more if you had a little bit more in the way of detail -- I think in the past that you had been saying that, large projects -- I think you were tracking somewhere 5 or more and you anticipated some -- it was unclear to you exactly when in the second half of '05 they'd be awarded, but you figured -- you were confident that you would at least get one. So given that kind of commentary on the past, has anything changed? Has that number risen in terms of the large projects you're seeing? Any thoughts there?

Yes, what I tried to indicate in my remarks was that we are, in fact, tracking an increased number of large projects. Some of those aren't anticipated to contribute yet to 2005, but you know, in aggregate the large number that we are tracking are not in this period. The increased number that we are tracking is not in this. That's a pretty -- pretty fixed picture.

Right. Okay. All right, great, thank you.

Welcome.

And we will take our next question from Sanjay Shrestha, with First Albany. Please go ahead.

Great, thank you. Good morning guys. Can I kind of follow-up on Tom's question about the backlog, and burn in the second quarter. You know, is the situation that you had a lot of distribution related work and those were a quick book and burn kind of thing, and therefore your revenue was higher than maybe what most were looking for in the second quarter, and two, you probably could have had a better backlog on the electric side, but maybe you were preserving capacity given that there was a lot of activity on the large-scale transmission front. Is that one way of looking at it?

Certainly the first is the case. The volume in the second quarter in the electric space was very much driven by just a tremendous surge in demand for distribution resources for some of our strategic customers. So that was -- and that is just as you say a very quick book and burn. So, that's certainly a factor. As far as kind of preserving resources, I wouldn't say that we have held back on pursuing opportunities for that reason, though Sanjay, that's just a function of timing of projects and awards. You know, as evidenced by the rapid completion here on Schultz-Wautoma. We've continued to just execute quite well against plans and schedules on the work we have in hand.

Okay, Okay, that's great. And with I guess the Governor signing the permitting issues of the PowerUp Wisconsin, and previously you guys had anticipated a lot of contribution from that particular project during 2005. Will that still hold true for '05? And maybe an incremental opportunity in '06, or do you -- would this change dynamics that might start to contribute a little bit more to your margins as well as the bottom line in the second half of the year?

At this point, the plan for the second half of the year is pretty firm on PowerUp. As you will recall, we finished the Minnesota portion of that line or substantially completed the Minnesota portion of that line earlier this year and then we had anticipated rolling right into some of the Wisconsin segments, however they were delayed with the permits and protest ...

Sure.

... bills and stuff like that. So at this point, the decks appear to be clear for that, and as I said, had just mobilized this week on the next 2 segments and are pretty substantial and are expected to contribute nicely in the second half, but we will start those up and run those through the end of the year.

Okay, but that's essentially in line with sort of your previous expectation, not an incremental opportunity though, right?

Yes, I'd have to say at this point that would be correct. Of course you know previously we've had to mitigate that a little bit because of the delays, and we took on other transmission work in that interim period, which has benefited us to come out about net the same.

Okay, great. And also obviously cash position is a function of the cycle of the project and you guys are probably going to get a higher cash position than where you are at the end of the second quarter, but given the emergence of some of these pretty big sized large projects and a very limited number of company, including your self, being able to execute on that, but do you kind of look into maybe bonding being something that you guys need to look into or you feel confident with your existing relationship that you can go out there and bid on, multi hundred million dollar kind of a job with the existing capital structure that you have?

That's a good question. The requirements for bonding, letters of credit or whatever vary quite a bit amongst the customer base here, so there's no particular pattern in that regard I'd say that has emerged. If anything, well I'd say a number of our projects in fact did not require bonds.

Okay.

Depends on the customer we are working for, Sanjay, typically with utility customers we don't -- there's no bonding requirements. With the Power marketing agencies, the federal regulations require that they do have bonds, but you know at this point we are okay with the level of surety programs that we have, that we don't see any constraints there.

Got it, got it, that's great. Thanks a lot guys.

And we will take our next question from Lorraine Maikis, with Merrill Lynch. Please go ahead.

Thank you, good morning.

Hi Lorraine.

We were just a little bit concerned with the magnitude of the loss on this project. I know that you've gone through a lot of staffing changes and of different -- trying to fix it, but I guess what we were wondering is, you know, $10 million implies a huge loss. Have you changed any controls or oversights of bidding on you know the size of projects or, something of this particular size?

First, if I may, I guess our preliminary indications were that the loss could be as high, as you say, as $8.5 million is our current estimates, but anyhow, with regard to our processes and controls, I would have to say that yes, we have strengthened them, that we had them in place and that to a large degree they weren't effectively implemented at some lower levels. That's where we've really concentrated on reinforcing the rigor of the bid development process in its early-stage.

Okay, and could you give us some specific examples of what you've changed or strengthened so we won't see something like this happen again?

Sure. We have had, for example, an expectation that there will be an independent review by a knowledgeable party of bids as they are developed. In this particular case it turned out that that was done poorly. That would be one example. We have had a number of expectations for different kinds of reviews that were to be performed and it turned out that perhaps we didn't have -- well, we have for example, now require formal signoff's rather than just a statement that something has been done. Things like that. The more formalized the rigor that has been expected.

Okay great, and then can you just give us an update on any activities you've seen with public private partnerships on the transmission side?

I would just say that there are continue to be a number of developments in that regard, that are reported in the trade press. Other than what's you know being publicly described and announced by others, I would not be in a position. Those are fairly confidential matters.

So just in terms of the activity that you are seeing, I mean that's still robust, there's still a possibility to get more transmission lines moving?

Yes, it is. And in fact, you will find quite a bit of reported activity in that regard, as well as the stuff that takes place below the surface so to speak, that's not ready to go public.

Okay, thank you.

We will take our next question from Jeff Beach, with Stifel Nicholas. Please go ahead.

Yes, good morning.

Good morning Jeff.

Two things. First, on the SG&A you did $50 million more business versus the last quarter. Your SG&A is up slightly, is that all real? Or is there any items in there that reduced the reported SG&A and are we going to see this kind of performance ahead here the next couple of quarters?

There's nothing unusual in there, Jeff, it's just a function of leverage on volume. I do expected to go up a little bit in the next couple of quarters, not significantly, due to the -- some hires that we recently made that Dave announced, and also we are doing our Sarbanes Oxley testing in Q3 and Q4. So I expected to see it slightly over $18 million the next 2 quarters.

Okay, and second, just on a couple of second quarter items, is the amortization related to the purchase accounting? Is that all finished now or is there some more yet to the reported? And then do you have a new slightly lower tax rate for this year?

On amortization, it's not quite done. We have a federal contract that run out for a couple more years. Expect about $1 million in the third quarter and $0.5 million in the fourth quarter. On our effective tax rate, we are looking at 42% for the year. We previously projected 40%, but with the project loss, it brings down the net income, and as you reduce net income, the effective permanent businesses increases your tax rate, so overall we would expect in a typical year to be 40 to 41% and we will be at 42% because of that compression.

Does that mean 40 to 41% in the next 2 quarters then?

No, no, 42% is what we are forecasting for the full year. So, it would be for the ...

...Okay, thank you.

And we will take our next question from Rich Wesolowski, from Sidoti & Co.. Please go ahead.

Thank you, good morning. Dave, did I hear you correctly that the $8.5 million estimated loss assumes the collection of current and projected claims on the project?

That's correct.

How much are those? And does that assumption mean that they've already been put somewhere in the balance sheet?

I'll handle that. There has been a portion of them put on the balance sheet. When you look in our Q, you'll see that we've got -- I don't remember the exact number, somewhere around $7.6 million in total claims. It's a little over a million related to this project on the balance sheet at that point in time. I actually did not disclose the total expected amount, but as you can imagine, you have to forecast what claims will be, and coming up with the total $8.5 million loss, because that's the expected loss for the full project, and not just as it stands through this point in time.

Okay. How much of Schultz-Wautoma is in the backlog right now?

At 94% complete, there won't be very much left in the backlog.

Maybe $2 to $3 million.

Okay. You guys spoke extensively on how the energy bill is being a positive for your long-term growth. Were there any specific projects or in just talking with your customers that, you know, they cited this as a risk for projects being held up by the delay in the bill?

Well actually, our experience over the last year has had any number of delays of expected projects and activity of many different sorts, that now get addressed in one means or another in the bill, I guess the one that -- the category of spend that comes most to mark, interestingly enough, is the pollution control retrofits for power plants. We do quite a bit of (inaudible) contractor work associated with that, although we are not vying for it, and a year ago going into 2004, we had a pipeline full of project opportunities that we expected to count that got delay, and then you know Spitzer and what the federal government backed off, and then the state government started to pursue them, and it just continued in that light of uncertainty. And now for example the energy bill giving incentives for the utilities to move ahead. We expect that market and the timing of those projects to firm up. That's probably the most clear example of the category of work where there have in fact been delays, where now there's an incentive to proceed.

Okay, but maybe asking my question a little more pointedly, do you think the energy bill passage creates more favorable backdrop for those projects or do you think it will result in some say 1 or 2 quarter immediate relief of some kind of pent-up demand?

I think it's the former. I think it'll take awhile -- I don't know about you, but I was a bit surprised that in Washington everybody to get their act together and finally get this bill done as quickly as they did, so I believe it's going to take awhile for things to sort out.

Okay.

Understand the full implications of them and act upon them, but I can't help but be positive in the long-term for sure.

Okay. Finally, I can remember if it was the last call all the call before, where you spoke about how fuel costs may prevent you from hitting margins that you had once anticipated. Has this continued or have you found a way to mitigate this.

Okay. They are what they are and we have not continued to experience much further growth in that on an incremental basis. As you know, costs have continued to increase little bit, but not dramatically lately. So they are baked into our performance.

We have been able to mitigate a portion of that through some contractor pass-throughs, but not the vast majority of it.

Okay, thank you very much.

[Operator Instructions].

And we will take our next question from Paul Patterson, with Glenrock Associates. Please go ahead.

Good morning. Most of my questions have been answered, but I wanted just to clarify something. You said the tax rate is now 42% versus 40%?

Yes.

Okay, and Path 15, when does that complete? And how much as that been adding to gross profit?

Path 15 was actually completed -- substantially completed in the fourth quarter of last year. Most of our references there have been for comparative purposes to show how much of an impact it had on the last year's earnings.

Okay, so there's no impact currently, correct?

That's correct, other than the resolution of claims, which are still outstanding, which we expect to be resolved by the end of this quarter.

Okay. Okay, thanks a lot.

Again, if you would like to ask a question please press star one. And we will pause for just a moment. We will take our next question from John Moore (ph), with Robert Baird. Please go ahead.

Good morning guys, just one real quick question for you, going back to the energy bill. How long do you think it'll take before you actually see the effects of the energy bill? Are we talking like a month, six months?

That's a great question. I think that will depend on the particular sector of the work, and of course, there's a lot of uncertainty as things gel. One of the most immediate impacts that we would expect to see, interestingly enough, would be in the various wind power projects that are there. The extension of this -- the tax credit, production tax credit, for multiple year period is a very big deal. What has been going on the last couple years is it was just like an annual renewal of it.

So project developers for example would have a very short time line to initiate projects and get them done if they were counting on that production tax credit. In fact, last year you may recall that we had a project from one developer that called us up at like Thanksgiving and needed a line put in service by the end of the year before his tax credit eligibility expired, and now with you know more future certainty, you know, longer time line -- time horizon for that, I've read various predictions of very significant increase in development activity going forward. Perhaps that will be the most readily apparent. Other things like, refinery expansions and things like that they take awhile to develop.

What about with regards with the electrical industry? Or infrastructure services? Electric distribution?

Well, I think all the provisions are positive. As far as being able to point to a particular project or utility and say, ah ha, that unleashes them to go ahead with a particular project or business strategy that we are aware of, I couldn't point to a specific nexus or topic. That'll have to develop, and as you know, it is very very situational for the individual utilities and their local situations.

Okay. Great, thanks guys.

Yes.

And we will take our next question from Adriano Almeida, with DGHM. Please go ahead.

Hi guys, I got on the call a little bit late, so sorry if this has been covered. You mentioned these resolution of claims on the Path 15 project. What kind of magnitude and in what direction do you foresee those resolutions going?

We don't disclose the exact magnitude of them, but it will be a positive uptick in earnings. Our claim recognition methodology is, right out of SOP 811, where we recognize revenue equal to costs and no margin on those claims until they are resolved. We would expect an up tick in earnings due to that's resolution.

Okay, and there wasn't any of that in this quarter?

Correct.

The other thing is on the credit facility, how much did you draw on that this quarter?

$18 million.

Do you anticipate drawing any more through the year?

It goes up and down. Yes we do, we have seasonal working capital needs and typically we borrow in the second and third quarters, collect and paydown, then have excess cash on the fourth and first quarters.

And how about these related party payments that came into the current liabilities account?

That's a shift from long-term into current, and it's mostly related to our purchase of Maslonka last year and whole back purchase price, which moved up into current liabilities.

Yes, sure, I understand, but how are you funding those payments?

Operating cash flow and draws on revolver.

Okay, so that would be the main -- because you only asked for one million in cash.

That's correct, but we've got availability under our revolver and continued operating cash flow.

Okay, very good. So you don't have any liquidity concerns at all?

No we don't.

Okay, thank you very much.

We will take our next question from Jim O’Melia, with Sunnymeath Asset Management. Please go ahead.

Jim O’Melia: Hi guys. There's very little mention other than the telecom market is picking up a little bit in backlog. Could you talk about what you are seeing? We've seen some other companies seeing increased spending sort of last mile and whatever, just talk a little bit about the telecom backlog and your interests in the telecom area and what cash flow that's producing.

Sure. We are not a huge player in the telecom infrastructure market on what you might call an external commercial basis. Our primary emphasis there is on proprietary infrastructure, where we have a business that's principally involved with leasing dark fiber to high bandwidth users. So that is our primary emphasis in that business, unlike others. It's kind of the unique position.

We do some work for others on a contract basis, like I mentioned we're doing some last mile fiber to the premises work for Verizon. Again, comparing and contrasting us to others that are playing in that market we do it only quite selectively sure and capacity, and can do it at a level of profitability that meets our expectation must therefore. So we are very selective in that regard, and basically a local player where we already have that capacity we have not pursued the business on a national level.

Jim O’Melia: Right, but only part where you have the dark fiber, there's more of that getting lit, and can you talk -- you know, is this starting to you know become meaningful? Could you give any you know sense of the size of that and you know, impact that's having.

We have indicated before that our market position there and our focus to be very attractive to us and one that we continue to pursue. We have a substantial presence throughout what I'll call the New York to Baltimore corridor and we have previously indicated that we are developing similar markets in a number of locations throughout the country. Were in the early developmental stages of the markets, other places in the country. But yes, we continue to find that an attractive market, and intend to pursue it.

Jim O’Melia: Okay, but you're not going to give us any sense of size or cash flow or anything?

Actually, Terry, I'll hand back to you.

You're looking for size of the backlog in telecom?

Jim O’Melia: No, no, how much it's you know contributing to EBITDA.

We actually have that broken out in our 10-Q. I don't have that handy at the moment, but we'll be filing our Q later today and that will be in the statement information.

Jim O’Melia: Okay, thank you.

At this time, there are no further questions. I would like to turn the call back over to management for closing comments.

Okay, well, thank you ladies and gentlemen for participating today, and as you've heard, excluding the recent project loss we are very pleased with our results for the quarter and we believe that we are well-positioned for the rest of the year for future growth. We look forward to speaking with you on our next call.

Ladies and gentlemen, this will conclude today's conference call. We do thank you for your participation and you may disconnect at this time.