Quanta Services Inc (PWR) 2005 Q4 法說會逐字稿

Welcome to the InfraSource 2005 fourth quarter and year-end results conference call. Today's call is being hosted by Dave Helwig, Chief Executive Officer, and Terence Montgomery, Chief Financial Officer. As a reminder, today's call is being recorded.

Statements made in 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 conference over to Dave Helwig. Please go ahead, sir.

Thank you, Jennifer, and good morning. Welcome to our fourth quarter 2005 earnings conference call. Joining me today is Terry Montgomery, our Chief Financial Officer. Before we discuss the details of our earnings release, let me take a minute to provide a broad overview and perspective on our business and our market.

The strength of our recent business results and our prospects for continued growth are reflective of a number of generally positive and convergent factors, including increased demand for our services in each of the primary end markets that we serve, numerous announcements of projects being undertaken to strengthen the electric grid across the country, the passage of the Energy Policy Act in August of 2005, which is intended, at least in part, to foster additional investment in the electric grid and other energy sectors and lastly, a trend towards increased reliance on outsourced infrastructure services and a desire by the utilities to consolidate the number of service providers they use.

Our business strategy continues to be based on capitalizing on these favorable trends. The key challenge for us and the industry remains the availability of qualified skilled workforce to address these growth opportunities. We believe that we are well positioned to further strengthen our leadership position in our markets and capitalize on these opportunities due to our reputation for safety, quality and performance, the strength of our customer relationships, our demonstrated ability to handle large complex projects, and the breadth of our services. For more detailed description of our business, including the risk and challenges facing us, please refer to our annual report on Form 10-K, which was filed this morning.

Today we will discuss our fourth quarter and full year 2005 results and the overall outlook for the first quarter of 2006. We are quite pleased with our performance for the fourth quarter 2005, which came in substantially above our original expectation and in line with the revised guidance contained in our January 27th press release. Our earnings per share was $0.15 per diluted share, an increase of 7% over the fourth quarter of last year, reflecting operating performance substantially ahead of plan.

As a result of higher than expected customer demand for our services during the fourth quarter in both our electric and telecommunications end markets, and fewer inclement weather disruptions due to warmer than normal weather during the month of December. Please note that these results do not include any proceeds from the settlement of project claims that were previously anticipated to occur during 2005.

Our revenues were $223.3 million or 16% higher than for the fourth quarter of 2004. Revenues from our electric, power, and telecommunications end market grew substantially during the quarter, offset by a purposeful decline in our natural gas revenues as we exited a number of lower margin contracts.

Electric power was up 29% to $124 million, telecom was up 82% to $29 million, natural gas was down 13% as anticipated to $63 million. Included in our fourth quarter revenues was about $14 million of work from storm related reconstructions efforts in the Gulf States following hurricanes Katrina and Rita. To better provide visibility into our revenue and backlog for investors, we have included a summary of our revenues in backlog by end market in this morning's press release.

Net income for the fourth quarter of 2005 was $5.8 million or $0.15 per diluted share versus net income of $5.5 million or $0.14 for the fourth quarter of last year. EBITDA from continuing operations as adjusted was $20.6 million, or 11% higher than for the fourth quarter of 2004, reflecting the growth in our revenues and our current mix of work.

Our fourth quarter cash flow was strong and our day of sales outstanding improved during the quarter. Terry will provide more detail on these results in a moment. For the full year of 2005, our revenues were $865 million, or 35% higher than for 2004, reflecting strong growth in each of our served markets-- electric power, natural gas, and telecommunications.

Net income at $13.7 million or $0.34 per diluted share was 43% higher than net income of $9.6 million or $0.26 per diluted share last year and EBITDA from continuing operations as adjusted was $59.9 million including a $10.1 million loss on the previously announced underground utility construction project.

Our total backlog of $894 million at the end of the fourth quarter increased 9% over the third quarter of 2005 and decreased 4% over the fourth quarter 2004. $590 to $610 million of this backlog is expected to be performed during 2006. This is roughly 20% greater than the equivalent amount as we entered 2005.

The recent increase in our backlog is attributable to additional scopes of work in our telecommunications and electric power end markets. These increases were offset by an expected decline in natural gas backlog pending natural gas master service contracts that come up for renewal in the first half of 2006.

As we mentioned on our third quarter conference call, very few of our natural gas master service contracts were up for renewal during 2005, an annual equivalent of almost $70 million per year is up for renewal in the first and second quarters of this year. We intend to be very selective in deciding which contracts to pursue for renewal based on our expectations of profitability and return.

Our changes in backlog for the fourth quarter by end market are as follows: our electric power backlog of $354 million is up 11% or $35 million over the third quarter 2005 and comparable to year end 2004. Within that backlog, our electric transmission is $184 million, up 18% or $27 million over the third quarter 2005 and up 15% or $24 million over the year ended 2004 due to a number of recent awards partially offset by completion of a number of projects.

As announced previously, the Schultz-Wautoma Project was successfully completed and energized in the fourth quarter of 2005. We're fully engaged in the next two segments of the Arrowhead to Weston (aka Power Up Wisconsin project). During the quarter, we were awarded six additional scopes of transmission work in Texas, Wisconsin, and New Jersey with an aggregate contract value totaling $56 million. We are currently actively engaged in the field with transmission projects in Wisconsin, Nevada, Georgia, Texas, Connecticut, and Oklahoma.

Looking forward, we are tracking and bidding on a number of large transmission project opportunities. We believe that we are well positioned to win many of these projects; however, as always, the exact timing and scope and success, if any, of awards in this area remains difficult to predict.

As you may know, we've previously included substation backlog in our other electric backlogs. In the interest of increased transparency and because of the specialized nature in close relationship to high voltage electric transmission work, this work is now broken out separately in a supplemental table in this morning's press release. Our substation backlog of $124 million is up 4% or $3 million over the third quarter 2005 and up 23% or $23 million over the prior year.

During the quarter, we were awarded nine scopes of substation work in Louisiana, Colorado, Texas, Michigan, and Pennsylvania with an aggregate contract value of around $27 million. Excluding substation backlog, our other electric power backlog of $45 million is up 10% or $4 million over the third quarter of 2005 and down 51% or $48 million over the fourth quarter of 2004. Remaining work in this category primarily consists of low voltage distribution work for utilities and work for our industrial customers.

During the quarter, we were awarded three scopes of work in this area in Illinois, North Dakota, and Kentucky with an aggregate contract value on the order of $9 million.

For natural gas, our backlog of $284 million is down 7% or $20 million versus the third quarter of 2005, and down 26% or $102 million versus year-end 2004. Reflecting our typical seasonal burn and the cycle of our MSA awards that I mentioned before, we would expect this trend to continue until the conclusion of the bidding season in the second quarter since a number of our MSAs are up for renewal.

As we've previously indicated we intend to renegotiate or exit any contracts which do not meet our profitability objectives. This process is already begun with pretty good results to date.

For telecommunications, our backlog of $232 million is up 26% or $49 million versus the third quarter 2005 and up 37% or $63 million versus year-end at 2004, reflecting a year over year increase in dark fiber contracts and recent awards for additional fiber to the premises and master service work for certain regional telephone companies.

As we've said consistently in the past, an important component of our value building strategy is to make acquisitions that compliment our existing business and to divest those business that do not fit within our core strategy.

During the fourth quarter we purchased EHV Power Corporation, a Canadian company that specializes in the installation of underground electric high-voltage networks. The purchase price for this company was approximately $4 million and the company had revenues of approximately $10 million in U.S. dollars in 2005. EHV will allow us to leverage existing and new high voltage electric customers and services in North America and add splicing services to our work on systems up to 400kV.

We do intend to continue to pursue selective acquisitions that are accretive and that contribute directly to our strategic objective. Today, concurrent with the filing of our Form 10-K, we announced a secondary offering of 13 million shares of our common stock. The press release for this offering can be found on our website.

Now I'd like to turn the call over to Terry Montgomery, our CFO, who will discuss the financial results for the fourth quarter in more detail and our outlook for 2006. Terry?

Thank you, Dave. Revenues for the fourth quarter of 2005 increased $31 million or 16% to $223.3 million compared to $192.3 million for the fourth quarter of 2004. This increase in revenues for the quarter was primarily due to growth in our electric power, and telecommunications end markets offset by an expected decline in our natural gas end market revenue.

Net income for the fourth quarter was $5.8 million or $0.15 per diluted share versus net income of $5.5 million or $0.14 per diluted share for the fourth quarter last year. As indicated in the table accompanying our press release, income is adjusted to $6.5 million for the fourth quarter versus $5.6 million for the fourth quarter last year, an increase of approximately 16%.

EBITDA from continued operations for the fourth quarter of 2005 was $20.1 million compared to $19.7 million for the fourth quarter of 2004. Excluding the items contained in the table accompanying our press release, EBITDA from continuing operations as adjusted to $20.6 million for the fourth quarter of 2005 versus $18.6 million for the fourth quarter a year ago.

As in the past, we have provided certain non-GAAP measures in order to enhance our understanding of our operating performance. These non-GAAP measures demonstrate how we, as management, evaluate the results of our operations exclusive of the effects of certain non-operational items.

Reconciliations of net income for the various non-GAAP financial measures are included in the tables accompanying our press release and posted on our website. As you will see in the tables from this morning's press release, we have added the non-GAAP measure of EBITA defined as earnings before interest, taxes, and amortization, and also EBITA is adjusted.

These two measures include all aspects of our equipment charges including both operating leases and depreciation from owned equipment and we believe they are important in analyzing our business because they provide a more comparative period to period analysis without regard to lease versus purchase decisions on capital equipment.

Also included in this morning's press release is a table for reference which details our revenue and backlog by our three primary end markets in periods indicated, including a break down of our electric end markets by transmission, substation, and other electric work.

Our SG&A expense for the fourth quarter was $20.5 million or 9.2% of revenue compared to $17.4 million or 9.0% of revenue for the same period last year. Our SG&A expense for the full year of 2005 was $75.3 million as compared to $63.9 million for 2004. Although SG&A increased by $11.4 million the expense as a percentage of revenue declined from 9.9% in 2004 to 8.7% in 2005.

The primary increases were related to Sarbanes Oxley expenses of $2.4 million, $500,000.00 of which was in the fourth quarter and we had no such expense in 2004, also due diligence expenses of $1.6 million related to an abandoned acquisition effort, incremental expenses from our third quarter 2004 acquisitions of EnStructure and Utili-Trax, and also additional personnel hired as a result of the 35% growth in revenues that we experienced during 2005. These increases were partially offset by the absence of $2.4 million incurred in 2004 related to our initial public offering.

At the end of the fourth quarter of 2005, we had total backlog of $894 million. You will recall that we classify contracts as backlogged if we have been awarded the contract and we have received the notice to begin work. Our backlog includes an estimate of work to be completed under master service contracts.

At the end of the fourth quarter, we had $24 million of cash on our balance sheet, $32 million in letters of credit outstanding, primarily to secure our insurance programs, and no drawings under our revolving credit facility. We had approximately $53 million of availability under our revolving credit facility and we were and are currently in compliance with all covenants under our credit agreement.

Our current cash balance is approximately $30 million and we believe we have sufficient liquidity to meet our expected operating and capital needs. Our balance sheet supports additional bonding capacity for future projects.

Day sales outstanding were 85 days at the end of the fourth quarter of 2005 compared to 93 days at the end of the third quarter. We calculate DSO as accounts receivable plus costs and estimated earnings in excess of billings less billings in excess of costs and estimated earnings divided by the average revenue per day in the quarter. As expected, our DSO declined during the fourth quarter due to the seasonal cycle of working capital for our business and collected cash from customers.

Net Cash Flow provided by continuing operations was $57.1 million in the fourth quarter 2005, consistent with our typical seasonal profile. Capital expenditures were $8.8 million for the fourth quarter of 2005 compared to $8 million for the fourth quarter of 2004. The majority of these capital expenditures were in our telecom business segment.

Regarding our outlook for the first quarter of 2006, we expect revenues of $185 million to $195 million and earnings per share of $0.01 to $0.03 per diluted share including pre-tax expenses of $700,000 related to SFAS 123R option expensing, $300,000 of amortization intangibles, and $750,000 of expenses related to the secondary offering that we announced this morning.

Our expectations for the first quarter are based on normal weather patterns and seasonal activity and no settlement of significant project claims. Due to normal seasonality, we currently expect revenues for the first quarter to be the lowest of the year at approximately 20 to 21% of annual revenue.

Our gross margin percentage for the first quarter is expected to be 13 to 14% due to the time of year and the current mix of work in our backlog. Our SG&A expenses for the first quarter are expected to be approximately $21 million to $22 million.

Depreciation for the first quarter is expected to be approximately $7.3 million and net interest expenses are expected to be approximately $2 million.

Capital expenditures for the first quarter are expected to range from 15 to $16 million, which represents 35 to 40% of our expected capital expenditures through the year. Our expected effective tax rate is approximately 42% and our expected weighted average through shares outstanding are approximately $40 million.

Our expectations for the full year of 2006 remain generally in line with the guidance we gave on our third quarter conference call in early November. More specifically, we currently expect that revenue in 2006 will be slightly ahead of 2005 due to expected growth in higher margin electric and telecommunications work offset by planned reductions in the volume of our lower margin natural gas distribution work.

As a result of this improvement in our service mix and other cost deduction in productivity improvement initiatives, we anticipate growth margins for 2006 to be in the range of 15 to 15.5%. We expect SG&A expenses to be in the range of 9.0 to 9.5% of revenues, including the implementation of SFAS 123R but excluding the cost of the ERP implementation which we continue to evaluate. We expect that the expenses for SFAS 123R will add approximately $3.0 to $3.5 million during 2006. Net interest expense is expected to be similar to 2005 and our effective tax rate is expected to be approximately 42%.

This concludes our formal presentation and we will now open up the line for questions.

Thank you. [Operator Instructions]

Our first question will come from Lorraine Maikis with Merrill Lynch.

Good morning, Lorraine.

Thanks. Good morning. Just wanted to touch on margins for another minute. Is there anyway for you to quantify either the hurricane impact on your margins or the warm winter weather impact? Those are two things that you said. It changed around the mix during the quarter and I was just wondering if you could give us some more information on that.

The hurricane work was higher margins on our normal average margins and as we mentioned it was about $14 million worth of revenue in the quarter. Additionally, the weather was much warmer in December than is typical and we do a lot of work in the upper mid-west states and the mid-Atlantic region and it has allowed us to be more efficient and also to generate more revenue. I can't give you a specific number of basis points it affected gross margin by.

Okay. In terms of the [Exelon] volume agreement that you had with them, it looks from your Ks that's beginning to roll off. Have you been able to get any color from them on the future revenue stream?

Yes. You read quickly. Yes, as we indicate in there, Exelon has completed the commitment on the volume agreement. They've spent more money on our services than the rate of their expenditure when we bought the company and they completed that expenditure obligation about a year early. We do continue with a very substantial and strategic involvement with Exelon and expect to continue in that mode going forward.

Okay. Finally, you mentioned the Energy Bill as positive for the outlook on your business. Can you just talk a little bit about the key changes that you're seeing and are you beginning to actually see your clients' react to this bill?

Boy, that's -- we react to the clients' pursuit of work and it's really hard to get behind that and find out exactly what's driving it. I don't doubt that the Energy Bill is providing some [inaudible] and security for folks to go forward, but there is quite a bit of literature out there theorizing what the drivers are and how much impact the Energy Bill has on its own, all kind of theoretical, I believe.

Nevertheless, we're seeing quite a bit of activity. You just follow the trade press, there's announcements of additional transmission lines almost every week and sequential progress being made in their licensing, approval, and physical pursuit continuously.

Okay. Thank you.

We'll hear next from Sanjay Shrestha with First Albany.

Great job. Good morning guys. Just want to confirm one thing on the Q1 earnings guidance here that does not include any anticipated claims recoveries from the [PAD15] Project, correct?

Does not.

That's correct.

Okay. That's great. One more, Dave, you kind of talked about [inaudible] in our opening remarks about emergence of some of the pretty big opportunities on the transmission side of the business. I know you don't want to get into too much details on a project by project basis, but is there any more incremental color that you can provide us, some of the areas maybe we can focus on in terms of some of the financial projects that can materialize here in 2006? Can you go into some more detail on that?

Gee, Sonjay. As we always have over the last couple of years, we track very closely what we call our sales or opportunities pipeline and I kind of remark, qualitatively, that the number of opportunities out there announced that we would have the ability to pursue has continued to grow and we find ourselves needing to be more and more selective in what we pursue.

We couldn't begin to pursue all of the available opportunities within our comfort range geographically. There's many, many, many more opportunities than we could possibly pursue. We're being selective. As you know, we specialize in doing the large project work and have a pretty good following for that, so you could expect that we will be actively pursuing those very large, extra high volume projects as they come up. The number that are out there are substantial and publicly known and reported all the time.

Okay. Okay. Great. Right along that line of selectivity, given the higher margin associated with the transmission related work, is it then fair to say that you want to make sure that your resources are allocated to the right places and maybe on this MSA or the natural gas related work, unless the margins go up pretty dramatically is it a trend we might expect to see that on the electric power side of the business continue to grow as the pie in your backlog as well as the revenue going forward?

Yes. That would be -- unfortunately the resources aren't transferable. Yes. We would expect with our focus on underground as we indicated to trim if necessary to get margins that we want, that we'd reduce that share of the pie a bit, compared to the growth on the electric side that, quite frankly, is about all that we can manage.

Got it. One, another thing. Obviously, you guys are going to pursue this aggressively, but something that you're going to work on as well is the fiber to the premise opportunity and seems like there is an anticipated spending that's going to pick up in the second half of the year. Obviously you're going to create a situation for the specialty contractor where they get to pick and choose, how do you think that that sort of impact you guys from a profit opportunity as well from incremental business opportunity?

That's a great question. We intend to take the same approach that we did before. We will pursue that work where we have a local presence so that we can be competitive and where we can get the work at margins that are attractive to us. As you know, we did not play in the large national contracts last year or the year before, whenever that was. But rather, played more locally, especially in the northeast where we had a presence and a very accomplished workforce and group at doing that work. We have continued to grow our presence doing that work selectively. It has met our margin expectations and we've been very pleased with it. For us it's a matter of discipline and focus. We're not after volume, but rather growth and earnings and we do operate basically all over the country for that kind of work. We'll see how it shapes out in the market.

Okay. That's great. Thanks a lot, guys.

We'll hear next from Tom Ford with Lehman Brothers.

Thanks. Good morning, Dave. Good morning, Terry.

Good morning, Tom.

A few questions for you. Terry, you had referenced, I think Dave, you kind of pointed to it as well, that the revenue's going to be up a bit in 2006 versus 2005 with obviously sort of a more attractive margin mix. Just wondering, and thanks for the details that you guys are breaking out now. It's very helpful by the way in terms of all of the tables, the data. You can kind of go back and look. Do you guys have any idea or are willing to offer anything in terms of relative mix ranges by the segments, electric, gas, telco, for the 2006?

Tom, actually I would feel more comfortable doing that after the gas MSA bidding season.

Okay.

It's a little hard to predict. Actually we're into that season now and, as I said, it's been pretty positive so far. I guess of 7 or so contracts that have come up for renewal in the first quarter, already we've renewed on terms that we find attractive, I believe 5 out of those 7.

Okay.

There's more to come and it's early in the season. The season extends through even the May timeframe. It's a little big early and it's going to depend, very largely depend on pricing and terms on those contracts as they come up for renewal.

Right. Okay. I'll file it away for the next quarter. The other question I had for you was, Dave, you've always talked about -- it had been noted by you guys early in the year but then less so. Kind of connected to that, with respect to the MSA renewal, just curious too about -- Number one, was there an impact from fuel in the fourth quarter? And is this what you're talking about, among other things, in terms of why you want to be more disciplined or guarded in the near term is because you're pricing is up reflecting cost inflation and you're just not really sure exactly how the market is going to receive that?

Yes. That's a part of the discussion, Tom. Clearly, we've stopped highlighting fuel as an impact. It's an extraordinary item. It is what it is. It's baked into these numbers and we certainly had a substantial impact from fuel costs throughout 2005 and have carried into the fourth quarter as you know. This type of work is for us, the most fuel dependant. You're always running equipment. That's how it works. You can't dig the ditch, bore the hole, whatever, without running that equipment out there. There's a substantial impact there.

The price of materials has gone up as you know and the other thing that happens in these contracts is the type of work that's out there, even the mix within this kind of little mini market, if you will, will change regionally. The mix being how much new housing development is going on as opposed to main replacement and refurbishment work and things like that.

The changes in the housing market have been interesting to track, to say the least, over the last year. Where on a national average, we've continued to see robustness in the housing market and some of our upper mid-west markets have been off quite a bit. The mix of work is changed and if you're doing more scattered small jobs rather than a big new neighborhood, the pricing has to be adjusted to reflect that. It's fuels, material, cost of labor. In mix of work, it's all of those things that go into determining pricing and ultimately the profitability of your work.

We're making sure we're being very disciplined about that and making sure that we're going to improve our profitability in the process of these renewals.

Okay. Great. The other question I had for you guys was in terms of the backlog or for the first quarter, is there any hurricane related activity that is in there?

No. Not in backlog. We had very modest amount of storm work continuing into the first quarter, but not material.

Dave, what about the, and I'm not sure if they're tied together or you guys just call them storm work what it is, but what about rebuild type activity? Is anything developing there?

We've classified that all as storm related activity. I was careful to use the words. The work that we did was more storm reconstruction than actually power restoration to customers. We built a number of transmission lines that got knocked down. That work continues in the region but I would say it is being very deliberately paced. The amount of load that's been disrupted and dislocated in the area is so large that the utilities are finding they need to very carefully plan what expenditures are appropriate and what timeframes, rather than just go rebuilding all the infrastructure that was there before.

Okay. Okay.

It's interesting. I've never seen a storm related situation where the load disruption was so great that it had that kind of an impact at the transmission level.

Right.

Frequently that's the case at the distribution level, but not --

Not at the transmission side.

Exactly. It's indicative of very wide spread dislocation.

Is this something that strikes you that this is going to be deliberately paced for an extended period?

I believe it will be as things are reconstructed. I know from talking with our customers in the area, they're being very deliberate and I guess it's been written in the press, as well, that there's a fair amount of uncertainty on mechanisms for cost recovery and stuff like that for the utilities that were most heavily affected as well.

Okay. Alright, thanks.

We'll hear next from John Rogers with DA Davidson.

Hi. Good morning.

Good morning, John.

Terry mentioned the 3 to 3.5 million for ERP expense, potentially.

No. That's for SFAS123R option expensing.

Oh. I'm sorry. Okay. The underground wiring acquisition that you made, the Canadian company. Dave, how big a market opportunity is that? I know there's been a lot of talk about more projects there, but how do you see that developing?

Quite well. What they do is specialize in the installation of those extra high-voltage cables and the splicing of them, which is high technology and high skill component part of the work. So we have done cable-- underground cable installations before but have not had the ability to bring the special high skills and technology to bear. We've had to rely on others. Actually interestingly, most frequently EHV Power over the last couple of years has done that as a subcontractor for us.

So it's a specialized highly skilled market. Very limited resources in North America to perform it. In fact, it is not infrequent that utilities will have to import labor from Western Europe or Asia in order to perform it. So it's a very nice specialty niche. I think there's lots and lots of work that's very complementary to our core work that we were doing before.

Can you give us a sense at all of the relative market there compared to your overhead transmission work?

Sure. It's never going to be at the same scale. I mean, this company for $10 million revenues in 2005 it's-- I guess even with substantial growth, it's never going to be that particular part of it - immense in terms of contribution to revenues. But given it's specialized nature, it does carry higher than average margins and it gives us the capability to deliver, again, part of our strategy, the complete range of specialized services. So it's more a nice strategic addition to our capabilities than something we look at for material growth.

Okay. Great that helps. Thank you.

Our next question will come from Rich Wesolowski with Sidoti and Company.

Thank you very much.

Good morning, Rich.

Good morning Dave. How are you?

Good.

You guys broke out the substation from the rest of the electric which is great. The profitability on that closer to the amount of the transmission work or closer to the more commoditized portion of the electric?

Yes Richard it is. It's similar to what we had before that our fixed price electric projects work is some of the higher margin work, [inaudible] and transmission will be similar.

Okay. And you guys have been waiting on some larger transition projects for a while now. I image some of the other contractors are also pretty keen at getting the work. Has the competitive landscape changed at all in the last 12 to 18 months in that market to the point where you expect to see a greater number of bidders for these jobs or maybe even that the profitability would've changed?

Well there're two questions there, Rich. No, the competitive landscape has not changed. It remains, for the what we call extra high voltage transmission lines and larger projects especially, that the capabilities and experience with doing that work are quite limited. So there is very few companies or entities that our customers would consider qualified for those kind of large extra high voltage projects. So in that regard, it has not changed at all.

As far as - I think the second part of your question was have we seen anything change in terms of margin? It's a little hard to analyze because every project is a bit different. But I think we have definitely seen trends of pricing firming as - especially, I kind of attribute it as much to the competition for available resources as anything else.

How about the Euro competition for available resources meaning on the labor? I think you suggested that some of your resources are non-transferable between your segments and you also mentioned that the demand in each of the segments is getting better-

Absolutely.

At what point - you know which is the first where you guys would really have to start trying to swipe project managers for the competitor or the wage inflation we may be accelerate. Is that a point in the near future or is that far off?

It's not far off. First of all, I'd say that - important to note that we've been very fortunate to have stayed in this market in the transmission project market over the years. So we didn't exit it when there wasn't as much work. We continued to do that work so we have quite a bit of internal kind of home grown capability if you will. We also have had the good fortune to have quite a number of high profile projects and the skilled and talented labor wants to work on those. So we've been able to recruit both supervision and labor in order to staff our projects. We've grown - as you might imagine just the number of projects we have underway now compared to what we did a year ago we've grown considerably in that area.

Additionally, we have turned to the use of foreign labor. We have a pretty significant amount of foreign labor in use and permits in our possession to recruit other overseas skilled labor as the need arises. Additionally, we have been on our own and in conjunction with the IBW increasing the participation of our apprenticeship training programs and working to revise crew composition ratios. The construction work on a big transmission line is a bit different that your high electrical distribution work so you're able to have a different mix of skills. So putting all those together yes labor is a challenge. Supervision is a challenge. We think we're in pretty good shape in that regard and I'd say it's my observation that pricing and margins could be said to be firmed a bit as a result of that competition for resources if nothing else.

Okay. Finally, did the higher proportion of backlog is going to be realized in a year or so relative to that scene in year end 2004. Is that merely a function of some of the projects you've booked in the past moving closer or there is much less lead time between when you guys bid on or what are the projects doing the work is less?

I can't think of any factors that would make them non-comparable year over year. No, it's just growth in this one year. We find we have to separate out like the [inaudible] since it's a multiple year backlog to give it any meaningful color you separate off what's coming on this year from the three year total if you will.

Okay, thank you very much.

You're welcome.

Your next question is from Jeff Beach from Stifel Nicolaus.

Yes. Good morning Dave.

Good morning Jeff.

Can you talk about the pricing trends in three overall segments. Electric, natural gas and telecom and then describe what it's going to take to see better profit margins ahead particularly in the natural gas and the telecom segments?

That could be a whole morning's discussion but in short, each one of those has different aspects to it unfortunately Jeff as you know. Lets take them in reverse order. In telecom our dock fiber remains very stable, remains very attractive in terms of margins and something that we're working to grow very aggressively as you know. The other work that we do in that end market would be the fiber to the premises type work and have spoken about. Our discipline in that regard and actually I think our demonstrated discipline in that regard and only taking that work on where it can be done at margins that meet our expectations so we'll expect in the telecom area we'll expect to follow the course I just described.

In natural gas there it's all about pricing and our MSA contracts and I think I've discussed there what we're doing in terms of renegotiating contracts and discipline on the terms of profitability and return. Within that I think I had mentioned that there were seven contracts that had come up for renewal thus far. We updated you with the fact that we were successful in two and is good. It's indicative that we're able to get the kind of pricing that we think we should but in fact we exited to where that was not the case so I would expect that our margin - anticipated margin improvement will follow from that and furthermore be dependent on field execution where our underground unit is very much focused on making sure that we're driving productivity and then profitability.

And then electric, as you know, we've got all these kind of different aspects of what we do there. Transmission and substation we've talked about the proportionate growth in backlog for them and indicated that for us that's higher margin work in distribution and qualitatively I think that's a pretty good picture to be painted and somebody else I think it was Tom referred back to the forecast here of growth here in revenues being less than our growth and profitability we're anticipating for this year and that all adds up to exactly that picture that we're trying to paint.

Okay. Natural gas pricing and profit margins. Where the profit margins on what's acceptable today are relative to four or five years ago. Is the profitability significantly under that period?

Compared to four or five years ago it certainly is because we were the telecom fiber ville that was going on in that period of time so there was scarcer resources.

So the pickup in telecom drove higher margins and natural gas and other underground work?

Yes, that period of time.

That is a transferable resource there, basically doing underground distribution type installations.

Alright, thanks.

[Operator Instructions] And we'll hear next from Jamie Cook with Credit Suisse.

Hi. Good morning.

Good morning, Jamie.

Most of my questions have been answered. I just have one - I want to ask the capacity issue I guess a slightly different way. Do you disclose at all - could you talk a little bit about the utilization of your current workforce so we can just get an idea of sort of how much more you can ramp up before you have to go out and actively recruit or possibly acquire if demand becomes as strong as some are predicting?

That's a tricky one to answer, Jamie. We characterize our workforce as a variable workforce. Whether it's union or non-union, it will shrink or swell depending on the workload that we have. Higher or fire, return to the halls of requisition and return to the halls as projects progress. So there's not a meaningful measure of utilization since our workforce varies directly proportionate to the workload.

Okay. Can I ask the question a slightly different way?

Sure.

I guess if demand continues, you guys obviously have a certain outlook for this next year. If demand continues at this pace, I guess at what point - do you think your fine through 2006? I guess at what point should we start to get worried, not that this is necessarily a bad problem to have?

Personally, I believe in certain segments of the specialty electric market and that would mean mostly transmission would be the most obvious example of that. I believe that the large, extra high voltage end of the spectrum of work that during this coming year not just us, but the industry in general will experience limitations on resources that can be deployed to accomplish the work that all of the potential customers would like to accomplish in the timeframes that they'd like to accomplish it. That's been my theory of the case in the market for some time and I believe we will see that in real terms during this year.

Great. Thank you very much.

[Operator Instructions] We'll now move to Tom Ford with Lehman Brothers.

Hi. I just had two follow-up questions. Number one, Dave, on the acquisition I think you said 10 million of revenue in 2005? I don't know whether you want to say what 2006 is or if you assumed that this company was part of InfraSource in 2005, what could the revenue have been for it?

I can get that a little bit. Don't take these numbers exactly, but there are type of services that can amount to 10 to 20% of a project value. You can use that as a parameter. That doesn't mean we necessarily pick up $100 million of revenue with them being online but we have the ability to address more projects on the underground high voltage then we don't without them.

Okay. So it's more about just the addressable market that you have access to, maybe?

Yes. And having the internal capabilities to address it as opposed to having to go outside.

Right. It's two-fold so we don't have to subcontract for it and in terms of competing for that work we are able to self perform it and bring it as part of the service rather than have it work the other way.

Okay. The other thing was - Terry what was the other income line? I think it was about 900,000 in the quarter?

Gain on sale of equipment. We periodically dispose of excess pieces or older pieces of equipment in auctions and there's an auction in the fourth quarter.

Okay, great. Thanks.

At this time, we have no further questions. I'd like to turn the conference back over to Mr. Helwig for any closing or additional remarks.

Great. Well thank you very much, ladies and gentlemen, for participating today. As you've heard, we're very pleased with our results for the fourth quarter and we believe that we're well positioned for 2006 and future growth. We look forward to speaking with you all again on our next call.

That does conclude today's conference. We thank you all for your participation and have a great day.