Quanta Services Inc (PWR) 2006 Q4 法說會逐字稿

Welcome to the Infrasource 2006 year-end results conference call. Today's call will be hosted by David Helwig, Chairman, President & Chief Executive Officer, and Terence Montgomery, Chief Financial Officer. As a reminder, today's call is being recorded. Statements made on this conference 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 on 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 guaranty 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. Helwig. Please go ahead, sir.

Thank you, Matt, and good morning, everyone. Welcome to our fourth quarter 2006 earnings conference call. As Matt indicated, Terry Montgomery, our Chief Financial Officer, is joining me today. We're very pleased with our performance for the fourth quarter, which came in substantially above our original expectations and also above the revised guidance contained in our January 16th press release. Our earnings per share was $0.19 per diluted share or $0.02 above the high end of our revised guidance range, reflecting the successful completion of several large projects, greater-than-anticipated customer demand for work at at year end, which did not include substantial storm work, generally favorable weather, and a reduction in our effective tax rate. Revenues for the quarter were $248 million or 12% higher than for the fourth quarter of 2005. Revenues from our primary end markets grew as follows: Electric was up 23% to $153 million; natural gas was up 5% to $66 million; and telecom was down 13% to $25 million. The summary of our revenues and backlog by end market is provided in a table to this morning's press release.

Our fourth quarter cash flow was strong and our day sales outstanding improved during the quarter, allowing us to reduce long-term debt by $20 million compared to the third quarter. Terry will provide more detail on these in a moment. For the full-year 2006, our revenues were nearly $1 billion, a 16% increase over 2005, reflecting growth in our electric and telecommunications end market and comparable revenues for natural gas. Our EPS was $0.65 per diluted share or 91% higher than for 2005, and net income was approximately double in 2005. Additionally, we successfully completed two follow-on offerings in March and August of 2006 and as a result, our stock is now more widely held. Our stock price increased during the year by 66%, providing substantial value to our long-term and newer shareholders. Additionally, we strengthen the Company by adding significant leadership throughout, created a new engineering and technology business, and focused the business on project management and productivity improvements.

In our industry, we continue to see announcements on a national level that should bode well for increases in the demand for the electrical services that we provide. Note worthy announcements by the FERC, the Federal Energy Regulatory Commission over the last several weeks include: Authorization of incentive rates for the New England Independent System Operators, or ISO and for Ducane Light; approval of five settlements of enforcement matters assessing almost $23 million in penalties under its Energy Policy Act authority; issuance of its final rule implementing federal transmission citing responsibilities; and just last week, adoption of the final rule reforming transmission open-access regulations.

On a regional level, the Midwest ISO released its plan for 400 transmission projects with a total estimated cost of $3.6 billion, and the California ISO released its first long-term planning document, including 160 transmission projects to enhance reliability, access new generation, deliver renewables and reduce grid bottlenecks. In addition, we saw a number of studies and reports released by analysts, industry organizations, and the media highlighting the expected increase in transmission spending and plans for the buildout and refurbishment of the nation's electric transmission and distribution systems. With our significant presence in transmission services and experience with large electric high-voltage lines and substations, we are believe -- we believe that we are well-positioned to capture work that is expected to follow.

Now, turning to backlog, our total backlog of $902 million at the end of the fourth quarter was 13% higher than the third quarter of 2006 and up 2% over the fourth quarter of 2005. The sequential increase in backlog is attributal to higher backlog in each of our primary end markets, including a 36% increase in our natural gas backlog due to a number of awards during the quarter, a 6% increase in our electric backlog, and a 3% increase in our telecommunications backlog. During the fourth quarter, we successfully completed the Bethel-to-Norwalk transmission project for Northeast Utilities as previously announced on January 8th and substantially completed other major transmission projects in Texas, the Midwest, Southeast, and West.

Among our awards for the quarter were 12 scopes of electrical work totaling $72 million, including three scopes of transmission work, five of substation work, and four of other electric in Texas, Colorado, Illinois, Michigan, Nevada, Ohio, and Arizona. Seven scopes of natural gas work totaling about $112 million in Texas, Michigan, Virginia, Georgia, Florida, Minnesota, Kentucky, and Ohio, and seven scopes of telecommunication work totaling $67 million in Wyoming, Pennsylvania, Delaware, California, New Jersey, and Georgia. Details of the changes in our backlog by end market are provided in the tables to this morning's press release, including the breakouts for transmission, substation, and other electrical backlog.

We continue to track numerous large transmission project opportunities. However, as always, the timing of such awards and whether we will be awarded the work remains uncertain. As previously announced on February 2nd, our M.J. Electric business unit was awarded a three-year construction and project management contract with the American Transmission Company, or ATC, for their northern region, which will contribute approximately $100 million to our backlog. More recently, Oscar Bolt Company, a regional general contractor, was awarded the contract for project management activities in ATC's southern region. We are in discussions and have committed resources to Bolt for the performance of electric high-voltage transmission construction in that region, but the amount remains to be determined. We look forward to working with ATC and with Bolt in the southern region.

An important component of our value-building strategy has always been to make acquisitions that complement our existing businesses and fit within our core strategy. During the fourth quarter, we acquired Realtime Utility Engineers Incorporated, headquartered in Madison, Wisconsin, that provide substation and transmission line engineering services for electric utilities and will expand our capabilities and resources in this arena.

Now I'd like to turn the call over to Terry Montgomery, our CFO, who will discuss our financial results for the fourth quarter in more detail and our outlook for the first quarter 2007. Terry?

Thank you, Dave. Revenues for the fourth quarter of 2006 increased $27.5 million, or 12% at $247.9 million. This increase in revenues for the quarter was due primarily to growth in our electric and natural gas end-market revenues, offset in part by a decline in telecommunications construction revenues as opposed to our telecom dark-fiber revenues which continue to grow. Net income in the fourth quarter was $7.6 million or $0.19 per diluted share compared to $5.8 million or $0.15 per diluted share for the fourth quarter last year. That's an increase of 30%. As indicated in the table accompanying our press release, income was adjusted to $7.9 million verses $6.7 million for the fourth quarter of last year. This improved fourth quarter financial performance is a result of: Our 12% growth in revenues; successful project execution; the planned exit of several under-performing natural gas contracts; a reduction in interest costs from the refinancing of our credit facility; and a lower effective tax rate offset by an increase in SG&A expense.

As in the past, we have provided certain non-GAAP measures in order to enhance 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 nonoperational items. Reconciliations of net income to the various non-GAAP financial measures are included in the tables accompanying our press release. Our SG&A expense for the fourth quarter was $23.6 million or 9.5% of revenue, compared to $19.9 million of 9% of revenue for the same period last year. Our increase in SG&A expense is due to the hiring of additional personnel over the past year to manage current and future growth, increases in bonuses tied to operating performance, stock-based compensation expense under SFAS 123(R) and also increased legal expenses.

At the end of the fourth quarter, we had $26.2 million of cash on our balance sheet, $33.6 million in letters of credit outstanding, primarily to secure our insurance programs, and drawings of $15 million under our senior credit facility. As Dave mentioned, borrowings were reduced by $20 million in the fourth quarter due to strong cash flow following the peak of our outdoor operations in the four -- third quarter. We had approximately $141.4 million of borrowing availability at year end and we are in compliance with all of our covenants under our credit agreement. Our current cash balance is approximately $32 million, and we believe we have sufficient liquidity to meet our expected operating and capital needs. Net cash flow provided by operating activities from continuing operations,$24.3 million in the fourth quarter, consistent with our typical seasonal profile.

Our days sales outstanding improved by 11 days to 75 days at the end of the fourth quarter, which compared to 86 days at the end of 2005. We calculate DSO as accounts receivable plus costs and estimated earnings in excess of billings, less billings in excess of cost and estimated earnings divided by the average revenue days per quarter. Capital expenditures were $9.6 million in the fourth quarter compared to $7.9 million in the fourth quarter of 2005. Approximately half of those capital expenditures were in our telecom business segment. Regarding our outlook for the first quarter of 2007, we expect revenues of $200 million to $210 million and earnings per share of $0.04 to $0.06 per diluted share, including pretax expenses of approximately $1.5 million related to FAS 123(R) share-based compensation.

Our expectations for the first quarter are based on the current mix of work, expected timing of projects in our backlog, and recent unfavorable weather we have experienced in the Northwest and the Midwest. Our gross margin percentage is expected to be approximately 14%, as the first quarter as our seasonally weakest period. Our SG&A expenses will be approximately $24 million to $25 million, depreciation will be approximately $5.8 million, and our net interest expense is expected to be approximately $1 million. Capital expenditures for the first quarter are expected to range between $17 million to $19 million and our effective tax rate will be approximately 39%.. We expect that our weighted average diluted shares outstanding will be approximately 40.6 million.

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

Thank you, sir. [OPERATOR INSTRUCTIONS] Our first question comes from Sanjay Shrestha with Lazard Capital. Please go ahead.

Great. Thank you. Good morning, guys. Just a couple of quick question here. First, Dave, given the significant movement on the transmission project here, which in the past has always been lumpy, could it then mean that on the natural gas side of the business, as we continue to move forward, it starts to become very strategic and core customer-like customer basis, kind of like your similar philosophy with the distribution side so that you can continue to have a pretty strong capacity to execute on all the transmission project that's coming your way?

Not sure I fully understood the question, Sanjay, but the resources there are not that transferable from type of work to the other.

Okay.

So we view those as pretty much stand alone lines of business without that much portability. As a focus for the business, though, as we've indicated, our focus is on driving profitability of the underground distribution of the natural gas distribution business through better pricing and, for sure, doing productivity improvements.

Fair enough, but my point more was, Dave, given the amount of transmission work that's out there, capacity starts to become an issue at some point in time, so what are some of the steps that you guys are taking right now so that instead of being able to do three to five large transmission jobs at a given point in time, maybe you can do more of that and hence, enhance you margins and overall levels of profitability?

Okay, so if I understand the question there, Sanjay, it's about the growth of capacity to take on transmission work, is that --?

Exactly, exactly, exactly.

Well that certainly continues to be a challenge. We geared up quite a bit this past year, as you know, and are continuing to work at increasing our resource in that area. The more work you have, the more people you can train is one factor. We're also very active in a number of apprenticeship programs, both union and non-union.

Okay, okay. And as it relates to this - the southern region of the ATC work, the EPC work for that, is that going to be sole sourced or is that actually going to be going to potentially to contractors or is it still a little too early to say in terms of how that's going to get divvied up?

It' -- it is s too early to say how exac -- how much work that will be or exactly how it will be divvied up, if you will. But we have a strong relationship with both and worked with them to secure that role.

And would it be a similar size like the one on the northern portion?

I really can't say.

Got it. One last question, then, guys. Better tax rate in the quarter, what should we think about your tax rate during 2007?

I said we'll be 39% to the first quarter. We would expect to be 39% to 40% for the year.

Okay, terrific. Again, congratulations on a great quarter, guys.

Thanks, Sanjay.

Thank you, sir. Our next question comes from Andy Kaplowitz with Lehman Brothers. Please go ahead.

Good morning, guys.

Morning, Andy.

Can you talk about the gross margins in the quarter? Was there anything in there that we should take note of, either negative or positive? It seems a little bit lower than last quarter. Is it just mix or is it something else going on?

We would actually expect it to be a little bit lower in the fourth quarter than the third quarter, just because of a combination of the mix of the work and the seasonality, when it starts to get colder in the Northwest and Midwest regions, where we do a significant amount of underground work.

Okay. Shifting gears for a second on to the natural gas. The backlog's been coming down over time, but has now ticked up in the quarter. Is this the start of a leveling off and maybe an increase in backlog going forward? How should we look at natural gas distribution going forward?

Well, actually, we've been indicating that the backlog was coming down over the last several quarters, as we worked off existing contracts and we had depending renewals. Most of those got dispositioned during the fourth quarter, so I guess that would translate into a levelization of that backlog.

Typically we have those renewals in the first quarter. This year they were accelerated somewhat and there were still a few open for the first quarter, but the majority we stopped taking care of last year.

The reason why I ask this was because I guess I know it, a pretty high correlation of housing starts and the reality is housing starts are not great, yet your business seemed like it has stabilized, so can I think of it as stabilized going forward?

Yes, we think that it is. We think that the level of revenue for natural gas, it was similar 2006 to 2005 and we would expect similar volumes during 2007.

This was all contracted -- timing of contract renewals.

Understand. And then just on the dark fiber market, you mentioned strength in the dark fiber market. How is the buildout going? I know that you don't like talking specifics, but how's the reception to the products and what should we look for in '07, continued strength in the area?

Yes, we've had some very nice successes in sales in the new markets that we've been pursuing. The lead time is such that the sales -- the contracts that we're signing now won't actually show up in backlog until they go into service and that'll be later this year or early next year. So very, very nice momentum. We're -- we continue to be very excited about the prospects in that business and its growth.

Okay. Thank you very much, guys.

Thank you, sir. Our next question comes from Jeff Beach with Stifel Nicolaus. Please go ahead.

Very nice fourth quarter to start with. One just piece of information and then I'd like you to discuss a little bit about your electric business. In the past, you've given us roughly the amount of your year-end backlog you expect to perform in the next 12 months.

Yes, it's approximately $600 million.

Okay, thank you. The other electric is the backlog and revenues are growing very nicely. You've talked a little bit in the past about some of this businesses. Can you expand on the other electric, the key two or three things that make up that business? And then along with it, are these outside electricians that can do transmission and substation work or is this a specialty skill? And then just overall in the electric, can you tell us -- earlier the question was asked about building of resources, can you tell us how big your -- or how much growth your apprentice program has seen over the last year or the last two years in the electric side of it? It's a lot -- sorry.

Yes, it's a run-on question, Jeff. I'll try and break it down. I think the first part was about the other electric work and what makes that up. We've said transmission, substation, and then other, so the other, then, would include utility distribution work, but also work in principally power plant work, scrubbers, heavy industry, new power plants, that sort of thing. So pollution control or emission control work has dominated the new awards there. And I think the last part of your question was about transmission resources. I really don't have good numbers on the size of the yield from our apprenticeship programs. But if I just think in terms of our Northwest reliability project up in Maine, we've added a substantial work force in the pursuit of that project in a region that we have not had large projects work on an ongoing basis, so we've added quite a few employees in -- just associated with that project and hiring locally and training people on it.

Just as a follow-up two things. Do you have in mind a growth of apprentices that you plan to train internally or do you -- that you can talk about? Or you still think over the next year or two you can obtain significant trained electricians from outside your Company?

All of the above, I guess. We -- obviously the best pass we believe is to continue to aggressively to recruit and train ourselves. We do work very closely with the IBW, who has a substantial apprenticeship program that is not unique to us, but that program sponsored by the union, and then we do the on the job training component of it. And certainly the -- to some degree the work force is a -- to a substantial degree the work force is pretty portable and likes to, or follows the work where it is. I believe one of the questions you did ask in there, Jeff, was about the potential to cross over between inside electrical and outside electrical work. That really is not that transferable. They end up in some areas being distinctly different union locals, and for sure, distinctly different skill sets.

All right, thanks a lot, Dave.

You're welcome.

Thank you, sir. Your next question comes from Jamie Cook with Credit Suisse. Please go ahead.

Good morning.

Morning, Jamie.

My first question, just when I'm looking at your guidance for the first quarter of 2007 versus last year, you're guiding to $0.04 to $0.06, last year you were at $0.06. Last year I'm assuming there was storm help in there, but still the guidance may -- looks a bit lighter than I had anticipated. Can you just walk me through what the drivers are? Is there anything unusual in there or to what degree is there some conservatism in the numbers for the first quarter?

Excellent question, Jamie. Yes, if you recall -- you may recall the first quarter of last year was exceptionally strong for us, with a very mild winter and quite favorable weather. And in fact, as that played out through the year, we expressed concerns at our fourth quarter of '06 would be weak because of the amount of money spent in the first quarter. That was last year's scenario.

Our experience has been just the opposite of that this year. As you know, the weather in the Northwest and the Midwest was distinctly unfavorable, with lots of snow, ice, and freezing conditions throughout the -- at least the first six weeks of the year. It's as strongly favorable as the weather was last year in that first quarter. This year it's been the opposite of that. It's been that strongly unfavorable. So that's the predominant factor. Beyond that, of course, the project work isn't -- it is what it is. The sequence of the timing of projects, their ramp up, their ramp down. It just depends and isn't predictable from year to year. So yes, this quarter is substantially weaker than our first quarter of last year. It's probably closer to the norm, where last year's was more exceptional. And besides the weather affect, it's the timing of specific projects.

Okay. And then also, when you talked about the up side in the fourth quarter, you mentioned a couple of factors why you beat the numbers, there was completion of some larger projects, you had greater demand at year end, favorable weather. I guess I can quantify the tax rate, but is there anything -- can you help me with how much the completion of the large projects helps you? If you can quanti -- sort of break those down for us? For the first three things you cited, the larger projects, the greater demand, or the weather, any way you can split that up for us?

That's hard to accurately quantify.

That's okay.

There was a substantial -- we did from a couple of key customers have substantially more work, especially late in the year than we intended or than we anticipated, that they had indicated we were going to be destaffing towards year end and then did not have us destaff, for example. Pretty much a mix, probably about equally proportioned amongst all those factors that you indicated.

Okay. And then just my last question. Can you just help us -- I mean you ment -- can you just help us with the type of projects you're bidding on today in terms of where they are, the size and when they could potentially be awarded, so we can get a feel for what should we be looking at over the next six to 12 months. I understand you won't win all of them, but can you just tell us the big projects that are out there that we should be looking at?

Well, Jamie, our bidding and award activity continues to be very robust as I indicated and they're all different sizes and all different types of work. Every one of our end markets is quite active right now, so I don't think there's anything -- I guess the only thing particularly noteworthy in terms of -- would be large transmission projects, there are a number that are scheduled to come out for bid this spring. They continue to move around on the timeline now. As recently as last week, one project that was expected to come out for bid was delayed until later in the year. So it continues to be something we track very closely, but a very dynamic picture. We also have a significant number of large, for us, substation projects associated with transmission work that continue to be quite active in bidding, award and negotiations. So across the board, just a very robust markets in every one of them.

I guess, though, one of your competitors, [Quanitue], when they announced the quarter, they say it's four projects that were about $250 million in size -- I think there was one in southern California, one up in Canada, there's the one from American Transmission Company -- are you -- I'm assuming you're bidding on the same types of projects. Is there anything else you can point to besides those ones that your competitors did?

We'll be following at least those.

Okay. Thank you.

You're welcome.

Thank you, ma'am. Our next question comes from Scott Blumenthal with Emerald Advisors. Please go ahead.

Good morning, gentlemen. Good morning, gentlemen, congratulations in the quarter.

Thank you.

Regarding the backlog, for those of us who are relative newcomers to following IFS, I'm assuming the ATC award that you mentioned is not in the backlog, so can you tell us how you calculate that and what's included in the backlog?

Yes, you're correct. The ATC award is not in the backlog since it was a subsequent award. So these backlog numbers as we reported them today were at the end of the year -- at the end of '06. So we count projects in backlog when they have been awarded, when we have a signed contract and have been authorized to proceed. We have a mixture of different types of work. The project work is very clean and discreet that way. We have a number of master service agreements, which are for all or a portion of a type of work for a customer, And in those cases, we count the anticipated volume of work over the period of the contract in backlog. And lastly, we have other business leases, and when those leases are entered into, we count in backlog the entire revenue stream from the duration of that lease. That's the three principal types of work that we have and the fundamentals of backlog.

Thank you. That's very helpful. Can you compare and contrast some of the natural gas awards that you received in the recent quarter to the type of work that you had then in previous quarters making a concerted effort to exit?

Well, yes, I can. We'd said over the last several quarters that we were either going to exit or get awards on commercial terms that were more favorable to us and met our thresholds in terms of profitability expectations. So one can certainly infer from that that with the substantial awards that we've reflected in increases in backlog here that we were successful in negotiating those contracts the terms that we believe are more favorable.

Okay, that's very helpful. And lastly, you did mention that some of the backlog seems to have accelerated into Q4 rather than waiting for the first quarter of '07. Can you speculate or give us a little bit of insight that you might have regarding whether you believe this is due to the amount of work that is anticipated to come up there and the resource constraints that companies like yours are facing or could there be other possible reasons for that acceleration?

Actually, I do not attribute the fourth quarter to any acceleration out of those seven. It was just that the volume of work continued at a higher-than-anticipated rate. There's nothing I would point to in that quarter that would at all be represented as pull in from this year. As far as other factors, the strength of the work in each of the end markets going forward remains per our expectations. The lesser expectations that we have for the first quarter of those seven, as I indicated, is principally a result of unfavorable weather and secondarily, just the layout of the actual timing of projects that we currently have in backlog.

So if you look at your year now as compared to the way that you would have looked at it during the last call, you expect, as the weather starts to get a little bit better and conditions are more favorable, to make up some of the things that you weren't able to do because of the bad weather during this quarter?

Part of that impact is we're still required to do the work in the quarter, so you're much less productive and that impacts your margin significantly. There will be some make up in the volume of work in future quarters for work that wasn't able to be completed because of frozen ground or ice and rain.

Okay. Thank you.

Thank you, sir. Our next question comes from Rich Wesolowski with Sidoti and Company. Please go ahead.

Thank you.

Morning, Rich.

Morning. Dave, are there any incentive bonus opportunities in the later stages of the PowerUp Wisconsin, the Bangor, any other large transmission jobs that are slated to be completed this year? And if so, are you guys in position to meet the performance deadline?

There are performance incentives in a number of projects that we're currently involved with and we obviously try to capture them as best we can. Not always able to -- to do it for various reasons, including impact of weather in some cases.

Okay. The completion of those two jobs, in particular, I think they're a significant proportion of your transmission backlog, is that going to relieve your capacity to take on other large projects of that type?

Well, certainly. The idea of large project work if you had -- if you had your druthers, they would come smoothly and you just move resources from one to the other. Unfortunately it doesn't quite work that way. But with the project completions that we had in the fourth quarter -- towards the end of the year we did substantial completion was the words that we used. We do have some ability currently to redeploy resources and have been doing it to these other projects that are ongoing. And with their ramp down and substantial completion, that will create capacity for us to take on other work.

Okay. Finally, can you just detail the changes, if any, in the dark fiber leasing business you've seen over the past year? Specifically in the number of opportunities or also the competition for the work?

I'd say much has not changed in the way of the competitive landscape. It continues to be the service providers that we're going up against. We've moved into several new territories during 2006 and have more targeted in 2007. So we're continuing to say that we've gotten good traction in those new markets.

Okay. Thanks.

Thank you. And our next question comes from David Beaumont with -- I'm sorry -- Copia Capital. Please go ahead.

Good morning, guys. Congrats on a nice year.

Good morning.

Two questions for you. One, the bump up in uncollectible accounts in the fourth quarter, what was that?

It was a combination of customers. We had some with -- actually with builders as opposed to utilities that we took some reserves on. Additionally, we have some project work that are a couple of disputes on that we prefer not to get into details on specific project, though.

Does that tend to be a fourth quarter -- do we tend to see that in the fourth quarter or is that just happened to be this quarter?

No, it's really not seasonal. It just happened to occur in this quarter.

Okay. And are we likely to see those going forward? Is that a sign of the economy slowing or is that just --?

No, we would not expect to see similar going forward. We typically do not have much at all in terms of bad debt.

Okay. In your first quarter guidance, you mentioned something about deferred comp or a charge for deferred comp, can you go over that again? Didn't quite catch it all.

No, it's not deferred comp, it's just the normal 123(R) stock-based compensation. We've been breaking it out separately because it was new in 2006, so that we could get good comparability to prior-year numbers.

Okay, and you said that was $1.5 million --

Yes.

-- in the first quarter?

Correct.

Okay. Great, thanks a lot.

Sure.

Thank you, sir. Our next question comes from John Rogers with D.A. Davidson. Please go ahead.

Hi, good morning.

Morning, John.

One other question just on the fourth quarter earnings. The nonoperating income in the quarter was a little bit higher run rate, anything unusual in there?

Nothing unusual. That continues to be gain on sales equipment -- I'm sorry, the one bigger piece would be we sold a couple buildings in the Midwest represented about $0.5 million gain of that total.

Okay. Okay. And Terry, nothing like that that you see at least in the near term other than just normal?

Yes, we would expect to see normal gains on sale of equipment. We try to be in the position where we're not in a loss position on the equipment.

Right. And then in terms of the guidance you gave looking out for the full year into '07, CapEx, what, $75 million? Just annualize the fourth quarter numbers?

No, won't be that high. I think we're looking at somewhere between $50 million to $55 million for the full year. Again, more than half of that targeted our dark fiber expansion.

Okay. And then presumably the natural gas bookings then will drop way down in the first quarter to a more --?

I'm sorry, John, can you say that again?

Natural gas segment bookings, just because you pulled so much forward into the fourth quarter, those will -- the backlog there will start to drop back down in the first quarter?

We still have a few contracts that we're bidding on in the first quarter, so I'd expect it to be level.

Okay. And then --

And then burn through the rest of the year, which is a typical cycle.

Yes, sort of more normal seasonal. And the last thing is, Dave, in terms of pricing of the market, obviously -- especially on the transmission side, you've seemed to pick up in activity and yet we haven't seen gross margins change a lot. Any thoughts on that? Will we see higher pricing in the impact of that as we go through this year or is that more further out?

We'd certainly like to see it. That goes to two factors, John. Clearly the level of competition, which is, of course, correlated with the availability of resources to do the work. And secondarily, with our performance.

So do you mean --

John, as we've -- continuing on the step that we've outlined and the plan to double operating margins over the next several years and one of those components, obviously, is an increase in gross margin, so for the full year of '07, we do expect to see a sequential step-up over 2006.

Oh, okay. Okay. All right. Well, thank you.

Thank you.

Thank you, sir. Our next question is from Alex Rygiel with Friedman, Billings, Ramsey. Please go ahead.

Thank you. A couple of questions. When you look at your natural gas backlog, it was down quite a bit every quarter all throughout 2006; 24%, 33%, 41%, 13%. But for the year, natural gas revenue was basically flattish. Can you help me understand the factors there that caused that?

Sure. Again, the awards are typically in the first quarter of the year, some in the fourth quarter. So second and third and fourth, we almost always see a decline in backlog, just because we're working off the volume of the MSAs. 2006 over 2005 was also impacted by a move to shorter durations of contracts. As we increased pricing, customers were less willing to go longer term, so that was part of the trade off for improving some pricing.

And when you look at your telecom business, you've invested a fairly significant amount of money in your dark fiber business over the last couple of years. Telecom was down 13% in the quarter, and your backlog's up only about 10% year over year. Can you help me to understand the mix difference between your dark fiber business and your other telecom business?

Yes, we don't break that out separately other than our segment reporting in our K. When you look in our segment reporting you'll see that the revenue in the dark -- in the telecommunications services segment will be somewhat comparable year over year. But recall that within there, there's also some construction activity. It gets a little bit confusing, but I can tell you that our dark fiber has continued to grow at a steady pace over the last several years and we actually expecting to see acceleration of that now as we've moving into more markets.

And with regards to Bangor Hydro, can you update us on the status of that project?

Sure. It continues through the winter months. Actually, up in the northern [climes] you want to have nice cold weather so things are frozen and you can get through swampy areas and things like that for construction. Job's progressing very nicely. We're very pleased with progress there and believe that the customer is as well.

When's the estimated completion date on that?

In the fourth quarter of this year. We were about 40% complete as of the end of the year, probably 50% now, and we'll expect to complete it by the end of 2007, November-December timeframe.

Great. Thank you.

Thank you, sir. [OPERATOR INSTRUCTIONS] Our next question is a follow-up from Jeff Beach. Please go ahead.

Yes. Can you discuss a little bit more of the competitive environment in the electric business? In particular, I'm interested to see if there's a gradual increase in negotiated business versus competitive business if you look at the last quarter or two with the business that you've won and whether you see this continuing ahead? And then also, are you seeing a tightening of business of resources across all your segments, competitors filling up backlogs with transmission substation, but even over into some of your specialized work in the power plant and scrubber, that kind of business. Are you seeing a tightening market across all these end segments?

I think as a generalization, it would be fair to say that the limitations on the amount of resources that are out there are causing some tightening. It's hard to discern an across-the-board pattern in that regard, but I think it plays out a number of different ways, Jeff. And we have seen customers working different strategies to secure a commitment of resources if they anticipate the need for them to accomplish their work over a multi-year period.

And a trend of nego -- are you seeing more business you're booking that's negotiated versus competitive bid?

I don't know that I could say there's a discernible pattern there. Even that that's negotiated has some competitive aspects to it to actually get to the position that you're the one negotiating for it.

All right. Thanks.

Welcome.

Thank you, sir. Our next question is a follow-up from John Rogers. Please go ahead.

Hi, I was just wondering. Over the last couple of years you've done a good job in terms of getting geographic coverage with some of your acquisitions in the transition business and you talked about trying to grow internally. Would you look at additional acquisitions and is that part of your plan?

Yes, it is, John. We have actually been very active in evaluating further acquisition opportunities. We're really thrilled with Realtime Utility Engineers. We found ourselves in a position where the engineering resources for our type of work were as tight as any other resources. And they were limiting our capacity to perform work -- turnkey type work and that's exactly the sort of acquisition opportunity we were looking for. So we'll continue to pursue acquisitions that'll give us a broader service offerings. You'll recall the year before we acquired EHV Power --

Right.

-- of Toronto, which added to our service capabilities and our geographic reach. So geographic reach, expansion of our service offerings, and staying with the core focus of the business is what we believe it's all about.

And Dave, the focus -- these have primarily been on the electrical side, is that -- do you look at that as the most attractive area, still?

Well, actually, we have pursued and are continuing to pursue acquisition opportunities in each of the markets. Certainly, assets that would be complementary to our dark fiber business are of interest to us, electric and a selective types of gas work. We've been quite pleased, for example, with the -- our -- in the scheme of things relatively modest role in the natural gas pipeline expansion work that's going on. Through one of our prior acquisitions we established the capability to do compressor stations work. I kind of call it the substations of gas transmission line. And we've grown that into quite a nice business and continue to look at ways to expand our resources there, as well.

Okay. Thank you.

Thank you, sir. [OPERATOR INSTRUCTIONS] And gentlemen, there appear to be no further questions. Please continue with any additional comments.

Well, thank you, ladies and gentlemen for participating today. As you've heard, we are very pleased with our results for the fourth quarter and for the year. We believe that we are well positioned for future growth. Thank you.

Thank you, sir. Ladies and gentlemen, that does conclude our conference call for today. Thank you all for participating. You may now disconnect.