Quanta Services Inc (PWR) 2007 Q1 法說會逐字稿

Welcome to the InfraSource 2007 first quarter results conference call. Today's call will be hosted by David Helwig, chief executive officer, and Terence Montgomery, chief financial officer. As a reminder, today's call is being recorded.

Statements made on this conference call may contain forward-looking statements based on InfraSource current expectations about future events. These statements generally relate to InfraSource 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 future performance. For a detailed discussion of these and other cautionary statements, please refer to InfraSource 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, Adrienne, and good morning, everyone. Welcome to our first quarter 2007 earnings conference call.

Joining me today is Terry Montgomery, our chief financial officer. This morning, we will briefly review our results for the first quarter, and our outlook for the second quarter.

We continue to make progress towards a successful merger with Quanta Services. As John Colson mentioned earlier today, we are on target for a third quarter close. While we're very excited about the future of the combined company, in the near term, we remain focused on the business, meeting the needs of our customers, and leveraging the favorable trends in our industry.

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

Following Terry's remarks, we will briefly answer your questions relating to our financial results for the quarter. We ask that you direct any questions regarding the pending merger and industry outlook to John Colson on the Quanta team, who covered these topics earlier today during their earnings call.

Terry?

Thank you, Dave. The first quarter of 2007--revenues were $203.8 million, down slightly from $214.3 million for the first quarter of last year. The decrease in revenues was due primarily to a decline in natural gas work, offset by slight growth in telecommunications and electric.

After the effective transaction costs related to our pending merger with Quanta Services of $2.2 million, net of tax, or $0.05 per diluted share, our net loss was $1 million, or $0.02 per diluted share. Exclusive of those transaction costs, our first quarter 2007 net income would have been $1.2 million, or $0.03 per diluted share. This compares to net income of $2.5 million, or $0.06 per diluted share for the first quarter of last year.

Our results for the quarter are reflective of adverse weather conditions in the Midwest and Northeast regions of the country. This compared to the unusually mild weather that we experienced in the first quarter of 2006. Lower volumes of work related to housing starts in our natural gas business this year, the planned exit of certain underperforming natural gas contracts, lower profitability on some of our transmission work, and an increase in SG&A expense due primarily to the hiring of additional personnel over the past year to manage the growth we have experienced.

All that was offset by a positive contribution from Realtime Utility Engineers, which we acquired during the fourth quarter of last year.

At the end of the first quarter, total backlog was $1.05 billion, or 16% higher than backlog at the end of 2006. This sequential increase in backlog is attributable to a 49% increase in electric work, including the previously announced contract with American Transmission Company, a 6% decrease in natural gas, and a 6% decrease in telecommunications backlog.

In addition to this sequential 16% increase in backlog, we received a significant number of contract awards in our dark fiber leasing business, which are not yet in backlog, because we have not completed the construction of the networks in order to obtain customer acceptance. Those awards awaiting completion of construction represent $107 million of total contract value, including $88 million signed during the first quarter of 2007.

Detail 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.

Additionally, we will include our normal, non-GAAP reconciliations of adjusted EBITTA and EBITDA with our 8-K, to be filed later today.

At the end of the first quarter, we had $23.6 million of cash, $34.4 million in letters of credit outstanding, primarily to secure our insurance programs, and drawings of $15 million under our senior credit facility, resulting in borrowing availability of approximately $140.6 million. We are in compliance with all of the covenants under our credit agreement, and believe we have sufficient liquidity to meet expected operating and capital needs.

Day sales outstanding improved by 12 days, to 76 days at the end of the first quarter of 2007, as compared to 88 days at the end of the first quarter of 2006. We calculate day sales outstanding as accounts receivable plus costs and estimated earnings in excess of billings, less billings in excess of cost and estimated earnings, all divided by the average revenue per days in the quarter.

Capital expenditures were $11.5 million for the first quarter, compared to $9.5 million for the first quarter of 2006. Over half of these capital expenditures were in our telecommunications business segment.

Regarding our outlook for the second quarter of 2007, we expect revenues in the range of $245 million to $255 million, and earnings per share of $0.21 to $0.23 per diluted share, including pre-tax expenses of approximately $1.4 million related to FAS 123R share based compensation.

Please note that this guidance excludes any merger-related costs, the timing and amount of which are difficult to predict.

This concludes our formal presentation. Now we will open up the lines for your questions regarding our first quarter performance. As a reminder, we ask that you direct any questions regarding the merger and industry outlook to Quanta senior management.

At this time, we will conduct a question and answer session. If you do wish to ask a question, please press the *, followed by the 1 on your touchtone phone. You will hear a tone, indicating you have been placed in queue. You may remove yourself from queue at any time by pressing *2. Also, if you are using a speakerphone, please pick up the handset before pressing the numbers.

One moment, please, for our first question.

Our first question comes from the line of Sanjay Shrestha with Lazard Capital Markets. Please go ahead.

Great, thank you. Good morning, guys. Just a couple of quick questions here.

On the backlog side, the other electric portion of the backlog jumped pretty dramatically here. What is that related to? Can you guys give us some more detail on that?

Sure. We had some master service contract awards that are one to three year awards that are fairly large, and that's a primary driver of that increase. We also had a couple of industrial awards.

Got it. Got it, okay. And on the natural gas side of the business, obviously, we've been strategic about not focusing lower margin business, and I guess we do have a bit of the housing dynamics as well. Now, at this point in time, do you guys feel like it's reached a level where it's going to at least start to flatten out from here, or maybe even start to trend back up?

I think we've got a pretty good gauge on our estimate for the business for the year. It's a little bit hard to predict.

We are seeing the beginning of a shift--as you would--as we normally anticipate when housing is down, into maintenance and refurbishment work. But as we've indicated historically, there's usually a bit of a lag in that. So it remains to be seen. There's some uncertainty in that, but we think it's pretty stable at this point.

Got it. And one last question, guys. Obviously, I'm not going to ask the macro-market question--probably don't even have to, either. It seems pretty robust.

So is there any internal initiatives that you guys are taking to sort of really train a lot of linemen as well as the project managers, who sort of support the anticipated growth in the transmission side of the business, along with the distribution side?

Sure. Yeah, we continue to be very active in training programs of our own, and training programs with the IBW for line workers--very actively recruiting experienced people as well from out in the industry. And in the professional ranks, recruiting experienced project management personnel from related industries that have relevant experience that can be brought to bear as we have increasing amounts of project work, especially in transmission.

Got it. That's great. Thanks a lot, guys.

Thank you.

Thank you. Our next question comes from the line of Andy Kaplowitz with Lehman Brothers. Please go ahead.

Good morning, guys.

Hey, Andy.

Could you elaborate on what you said around dark fiber? I think you said, new awards of $107 million, but you haven't booked them yet in backlog. Is that what you said?

Yeah, let me clarify. We have $88 million that was actually signed during the fourth quarter of [2007], and a total of $107 million of contract awards that we are awaiting to go into backlog. We don't officially place them in backlog until the construction has been completed in the system and we can actually turn it on for a customer and start to receive revenues.

I see. Does that argue that once you book them, and the money starts flowing, that--I mean, this is high margin business. That would affect your margins going forward, in a very positive way.

That would be correct.

Okay. Just shifting gears for a second. You mentioned SG&A--it's a little higher than we forecast, but you said it's just extra people coming in. Is that sort of the trend that we should see going forward, it's just with the strengths of the market, that SG&A should be a little higher?

We think we've leveled it off at this point. We've--as Dave mentioned, geared up on the project management side. We believe we're where we need to be on that now. Then with the effects of the merger, it's a little difficult to predict how that will actually all play out over time.

Gotcha. And just one final question. I don't know if this is macro or not--you tell me. I'm just wondering about pricing of your contracts, as we stand right now, because the market seems pretty tight and there's a lot going on. Does that mean that in general, you're seeing sort of better pricing overall for your products?

Yeah, Andy, we've remarked previously, in a general sort of way, that we were seeing some firming up in the market. Not just with pricing, but with terms and conditions, actually. Probably more noticeable there, where the terms and conditions tend to be a little more favorable, as you have a better position to negotiate them.

That's going to vary by type of service, also.

Oh, for sure.

Understand. Okay, thanks guys.

Thank you. Your next question comes from the line of Chase Becker with Credit Suisse. Please go ahead.

Hi, good morning. This is Chase Becker for Jamie.

Good morning, Chase.

Just had a quick question in regards to your prepared remarks, where you mentioned that you had some transmission projects that came in with lower profitability. Can you elaborate on that? Was that multiple projects, one specific project?

Yeah, just a general trend that our performance on--actually, our portfolio transmission projects under construction during the period performed at a somewhat lower margin than we had originally anticipated.

Okay, but that--

Ah, excuse me. One other factor in there is that on--in particular, one of them, there was a larger proportion of subcontracted work than originally anticipated, and our markup on it causes relative margins to be lower.

Okay. And then, my follow up question is, in regards to the tie-up with Quanta, can you comment on what your customers are telling you? What's the overall tone? It seems to be that--obviously, there's a lot of synergy opportunities, but has the reception generally been extremely positive, and do you expect that because of this type of synergy--and obviously, you can't comment going forward on the work you guys are going to realize.

But is there any reason to believe that any of your customers are not happy with this?

No. I'll only paraphrase what John Colson's characterization of that earlier was, that our customers collectively--our customers have been very pleased with the prospects of the combined company, and what we can do for them.

Okay, thank you very much.

Thank you. Once again, ladies and gentlemen, if you do wish to ask a question, please press *1 at this time. Also, if you're using a speakerphone, please pick up the handset before pressing the numbers.

And our next question comes from the line of Jeff Beach with Stifel Nicolaus. Please go ahead.

Good morning, Dave and Terry.

Good morning, Jeff.

Hey, Jeff--how are you?

Great. This surge in other electric backlog that you just mentioned before, from under $100 million last year to over $200 million--a lot of it's MSA. Is this--a lot of this regarding some of your specialized work, such as emission controls and other work that generates potentially higher margins that your normal day to day distribution work? Can you talk about a lot--where--what the nature of this $100 million jump in work is?

Yeah, Jeff. The two things that are in there, as you indicated, are MSA distribution work that's electric, and also some of the pollution control work, which is a very active market.

I wouldn't--I don't have at my fingertips splits on those, relative to what got put in versus what got worked out, but off the top of my head, I'd say probably half to two-thirds of that was that MSA electric distribution, and the rest is the pollution control work.

We do experience that to continue to be a very active market.

All right, thanks.

Thank you. And once again, ladies and gentlemen, if you do wish to ask a question, please press *1 at this time. Also, if you're using a speakerphone, please pick up the handset before pressing the numbers.

And it appears there are no further questions at this time. Mr. Helwig, please continue.

Thank you, ladies and gentlemen, for participating in our call today. We are looking forward to the successful closing of the merger, and as this may be our last earnings conference call, depending on the actual timing of that merger, I would like to sincerely thank our investors for their commitment and support over the years, and our analysts, for their hard work in understanding and conveying the company and industry to our existing and potential investors.

Thank you, and have a nice day.