Quanta Services Inc (PWR) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Quanta Services fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded today, Thursday, February 21st, 2008. I would now like to turn the conference over to Mr. Kip Rupp. Please go ahead, sir.

Thank you, Patty, and welcome, everyone, to Quanta Services conference call to review 2007 and fourth-quarter and full-year results.

Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to be on the e-mail or fax distribution list to receive future press releases for Quanta or if you had any additional technical difficulties this morning and did not receive your e-mail or fax, please call our offices at DRG&E at 713-529-6600. Also, if you would like to listen to a replay of today's call, it will be available via webcast by going to Quanta's website at www.QuantaServices.com. In addition, there is a telephonic recorded instant replay that will be available for the next seven days, 24 hours a day that can be accessed as set forth in the press release by dialing 303-590-3000 and using the pass code 11108953.

Please remember that information reported on this call speaks only as of today, February 21st, 2008 and therefore you're advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call. Also, this conference call will include forward-looking statements intended to qualify under the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements include but are not limited to projected revenues, earnings per share, tax rates, capital expenditures and other projections of financial and operating results and information -- growth in particular markets, Quanta's strategies and plans, anticipated future projects, expected benefits from the merger with InfraSource Services and any other statements regarding Quanta's expectations, intentions, assumptions or beliefs about future events or performance or that do not solely rely or relate to historical or current facts. Actual results may differ materially from those expected or implied as forward-looking statements, and management cautions you should not place undue reliance on these forward-looking statements. Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predict or are beyond Quanta's control.

For additional information concerning some of the risks, uncertainties and assumptions that could affect these forward-looking statements, please refer to Quanta's annual report on Form 10-K for the year ended December 31, 2006, its quarterly reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007, and September 30, 2007 and its other documents filed with the Securities and Exchange Commission, which may be obtained through the SEC's website at www.SEC.gov. All such forward-looking statements, whether written or oral, are expressly qualified by these cautionary statements and any other cautionary statements that may accompany such forward-looking statements. In addition, Quanta does not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call.

With that, I would like to now turn the call over to Mr. John Colson, Quanta's Chairman and CEO. John?

Good morning, everyone, and welcome to Quanta Services fourth-quarter and year-end 2007 conference call. To start the call this morning, I will provide a general overview of the period, insight on current market conditions and our perspective on the future. My comments will be followed by a review of our electric power and natural gas operations by John Wilson and a review of our telecommunications and cable operations by Ken Trawick; then James Haddox, our Chief Financial Officer, will review the quarter and year-end financial results. After our prepared remarks, we will open the call for questions.

Quanta continued its strong of financial and operational performance in the final months of 2007. This year's results include four months of revenue contributions by InfraSource operations. While this contribution is noteworthy, it is equally important to note that we achieved organic revenue growth for the year of 9.4% from legacy Quanta operations compared to 2006. Total as reported revenue growth for the quarter, including InfraSource in 4Q '07, increased to 50.2%.

Revenues for the quarter were approximately $879 million. This compares to $585.2 million in the fourth quarter of 2006. Revenues for 2007 were $2.66 billion compared to $2.1 billion for 2006. During this period of growth, we also accomplished operating income margin enhancements year over year. Improving margins has been a priority for Quanta and it's reflective of our efforts and success in managing contracts, increasing efficiencies and streamlining our operations.

Backlog at year end remained at record levels with approximately $4.7 billion of total backlog and approximately $2.6 billion of backlog for the next 12 months. This strong backlog improves our visibility and reinforces our belief that 2008 will be another strong year for Quanta. Our services are in high demand as infrastructure spending continues, and it continues to be a priority in the markets that we serve.

To increase the clarity of our revenue breakout, last quarter, we started presenting revenues by type of work. When divided by type of work, our 2007 fourth-quarter pro forma revenues were approximately 56% from electric power services; 15% from natural gas services, including pipeline integrity; 20% of pro forma revenues were from telecommunications and cable services as well as Dark Fiber leasing; and approximately 9% from ancillary services, such as horizontal directional drilling and commercial and industrial wiring.

One factor that we believe differentiates us from our competition is our customer diversity. Our largest customer for the quarter made up only 4.6% of our revenues. Our top 10 customers for the quarter equaled 29.4% of our total revenues and our top 20 customers made up approximately 42.5% of revenues.

At the end of the fourth quarter, our employee count was 15,261. This compares to 15,672 at the end of the third quarter and up from 12,020 at the end of 2006. Obviously, at this time last year, we had not completed the acquisition of InfraSource. The decrease in employee count for the fourth quarter compared to the third quarter is typical for the last few weeks of the year, the holiday season and winter weather.

Our business continues to be positively impacted by the InfraSource acquisition. The acquisition was timely, and as John and Ken will discuss shortly, our customers are directly benefiting from the increased capabilities of our nationwide footprint and the readily accessible workforce. The integration phase of the acquisition continues to be on track and the synergies, as expected, are being recognized. As our utility customers face a challenging mixture of reliability and renewable standards, tax incentives and citing issues, access to an experienced, safe and reliable workforce is critical to meeting regulatory and consumer expectations.

Our telecom customers are also faced with increasing demand for services and system reliability. This, combined with an increasing competitive industry dynamic means they need their networks built quickly, efficiently and safely. Quanta is the contractor of choice in these circumstances.

In recent weeks, we have had investor inquiries about a downturn in the markets we serve because of the slowing economy. I want to emphasize that we continue to expect a very bright future for Quanta both near term and far term. The nature of Quanta's specialized contracting services and customer diversity, by design, minimizes the impact of short-term general market uncertainty or downward trends in other areas of construction. Most of our customers remain financially sound and focused on expanding existing and building new infrastructure to meet increasing demand. People need power. And utilities maintain their focus on producing and delivering reliable power from a variety of sources to their service territories.

Historically, our customers have continued to spend through short-term economic softness or weak recessions. Obviously, a long-term or deep recession would likely have some impact on our customers' spending. However, utilities are also still outsourcing more of their work and these trends should continue as their aging workforce issues linger. In this situation, lower spending may not automatically mean less revenue for Quanta. In our view, Quanta remains the partner of choice for utilities in need of broad infrastructure expertise, sensitive equipment and workforce resources. Also, as new technologies emerge for communications and digital services, such as voice, video and data, continue to converge, telecommunications and cable service providers work quickly to deploy fast, next-generation fiber networks. Of Quanta is recognized by the carriers as a key partner in deploying these services.

Looking to the future, Quanta is in a strong position to build the infrastructure required by the growing demand for renewable power sources, such as wind and solar. In 2007, five states initiated renewable portfolio standard programs, three states proposed such programs, two states initiated voluntary programs and seven states expanded existing programs. It is very likely that a federal standard will be a serious consideration once the next administration is in place.

Some sources predict that the U.S. wind market will exceed 50 gigawatts of capacity by 2015 and will require between 184 and $356 billion of investment between 2007 and 2025. There are many benefits to this type of commitment -- new generation resources, fuel diversification and greenhouse gas reduction. However, due to the often remote location of renewable sources and smaller output of energy, significant transmission infrastructure is required. Also, because the wind does not always blow and the sun does not always shine, wind and solar generation facilities require redundant or backup facilities if used as a primary source of generation. We remain focused on this area of the industry and this will be a significant strategic initiative for Quanta going forward.

The future for Quanta is one of strength, revenue growth, margin performance and a solid leading market position. The year is off to a good start and our backlog assures us that we will continue to deliver value to our stakeholders, our customers, our shareholders and our employees.

Now I'll turn the call over to John Wilson, who will discuss the recent developments in our electric power and natural gas operations.

Thank you, John. Good morning, everyone. John's excitement about our Company's performance in the fourth quarter and full year as well as his optimism about the future of our Company is contagious, and it is based on solid facts and performance. We believe the future presents robust opportunities for Quanta. These opportunities continue to contribute to our growing backlog. Twelve-month backlog for the electric power and natural gas operation at December 31, '07 was approximately $1,840,000,000. Total backlog for the electric power and gas operation at December 31, '07 was approximately $3,750,000,000. These two statistics represents record levels for these operations. James will discuss comparative backlog in more detail shortly.

These are significant achievements, and I want to commend our operating units for working hard to meet the growing demand for our services throughout the country and working with their customers to design solutions to meet their evolving and varied infrastructure upgrade requirements. We have made significant progress on several projects that we discussed on last quarter's earnings call and many which are focused on upgrading the transmission grid.

Earlier this month, the Arrowhead-Weston transmission line was energized. This is a 220-mile, 345,000 volt line, linking Wausau, Wisconsin and Duluth, Minnesota is one of the nation's largest transmission lines. Under a contract with American Transmission Company, ATC, our [Iljay] Electric operating unit provided construction, which included structure installation, conductor stringing and other related work. The construction of the line was completed seven months ahead of schedule and the line was energized four months early. ATC stated that the line improves electric system reliability by reducing the strain on Wisconsin's single transmission connection to the West. The line also increases import and transfer capability into Wisconsin and provides needed support for Wisconsin Public Services' Weston 4 power plant, making central Wisconsin less vulnerable to outages. Our Middletown to Norwalk 345,000-volt transmission job, which is part of a 2006 contract with Northeast Utilities, NU, is progressing nicely. We anticipate that this job will be completed in late 2008, ahead of schedule.

We are also starting the preplanning stages of the $750 million contract with NU. And in the fourth quarter of this year, we will be initiating smaller transmission make-ready projects to prepare end-use transmission grids for this construction. Full construction of this transmission line is on track to begin the fall of 2009. The work under the contract is now reflected in our total backlog numbers, which remain at historically high levels.

We are also on target and scheduled to start work on Allegheny Energy's 210-mile, 500,000-volt Trans-Allegheny Interstate Line called the TrAIL Project in the late fall of 2008. This work to install the transmission infrastructure was secured through a contract with Kenny Construction. The Tehachapi project, which includes installation of 75 miles of 500,000-volt transmission line to address the need for additional infrastructure to deliver power from a local wind farm, is in the early construction phases. This is an important project, because, as John mentioned, the focus on and requirements for renewable energy resources is increasing rapidly.

And new transmission jobs continue to be awarded. We expect to sign another mega-transmission contract with a utility in the coming days. The contract addresses multiple transmission lines that need to be upgraded to meet increasing power consumption and relieve a system experiencing congestion and system strain. This utility, like so many others, is focused on planning for its transmission system today to ensure access to a trained, experienced workforce to maintain and upgrade this power structure.

We also expect decisions on two large transmission projects, one in the East, the other in the West. We have submitted bids for these projects and anticipate a decision in the near future.

Other projects that we have discussed in previous calls include the [Paliverdi to Dubrous] line encompassing 250-mile, 500,000-volt transmission line for Southern California Edison. This project remains delayed due to permitting from the state of California. However, FERC recently approved a request from Southern California Edison for transmission investment incentives related to this and other proposed transmission projects. We believe this project could be put back out for bid as early as fall of 2008.

The 190-mile, 500,000 volt AltaLink project in Canada has been postponed for a number of reasons, one of which is the consideration of rerouting the line, which would entail new permitting, which could take as long as one year.

The other major projects mentioned in the last conference call are, as far as we know, still on schedule to bid over the next several quarters.

Although fourth-quarter gas revenues decreased due to the exiting of low-margin business, we have recently observed an increase in revenues related to our gas operations. This is attributable to the diversification in our services in this area. We have initiated work under two contracts totaling more than $90 million for two utilities in North Texas. The contract covers installation services of transmission pipeline designed to transfer natural gas from the Barnett Shale. This continues to be an area of opportunity for our Texas-based gas operations.

We also recently secured a gas distribution contract for new residential construction in the Greater Philadelphia area. The contract spans three years with two one-year renewal option and has an expected value of over $15 million each year. This contract was negotiated based on an existing contract with the utility. The operating unit that was awarded the contract has been performing services such as design, scheduling, maintenance and construction for this utility for many years.

During the fourth quarter, emergency storm restoration accounted for 8.7% of revenues from our electric power and natural gas operations. Winter storms impacted more than 700,000 homes across the country in November and December alone. Our crews quickly deployed to support restoration efforts in the areas impacted.

From a regulatory standpoint, there continues to be momentum behind the Energy Policy Act of 2005 and incentives for utilities to upgrade their transmission system remain. At the end of the year, three new reliability standards were approved by FERC. These standards require planning authorities and reliability coordinators across the country to establish methodologies to determine operating limits of the bulk power system for planning and operating purposes. Also, certain authorities put in place by the Energy Policy Act were put into action in the fourth quarter. As previously mentioned, FERC approved a request for transmission investment incentives for the new grid construction of three of Southern California Edison's proposed transmission projects in California and Arizona. FERC also approved similar requests from Baltimore Gas & Electric for several projects in Maryland.

With mandatory reliability standards in place, an imminent workforce shortage and upward pricing pressures, utilities are taking action now to ensure access to expert reliable resources to make their power delivery strategies a reality. This is evident in the transmission project developments in the fourth quarter in our recent contract awards.

Our perspective looking forward is very optimistic. We expect to continue to grow our revenues within our existing core expertise while maximizing margins. And tandem, we will evaluate and aggressively pursue opportunities that further diversify our service offerings through the application of our existing knowledge base. We believe that this approach will continue to be a formula for success for Quanta.

Now I will turn the call over to Ken Trawick, who will review the performance of Quanta's telecom and cable operations. Ken?

Thank you, John, and good morning, everyone. I'm very pleased to have the opportunity to report this morning that the telecom and cable group had another good year in 2007, finishing strong in the fourth quarter. In the fourth quarter of 2007, we had approximately 60% organic revenue growth compared to the fourth quarter of '06 on a pro forma basis. Quanta's legacy telecom and cable group without AFS revenues in either the fourth quarter of '06 or the fourth quarter of '07 had approximately 66% in total revenue growth. This strong growth was attributable primarily to additional work by our outside plant operations to support fiber to the node or fiber to the premise initiatives for service providers such as Verizon and AT&T combined with a dramatic increase in revenues from our wireless division. We would have to go back to the fourth quarter of 2000 to find a stronger quarter from a revenue perspective and the fourth quarter of 2003 to find higher operating margins for the fourth quarter for Quanta's legacy telecom and cable operations.

I do want to emphasize that the growth we achieved in the fourth quarter was attributable to an increase in demand for our traditional services being fulfilled by power legacy operating units, which have been part of our organization for years. The aggressiveness with which service providers are expanding their networks is reflected in our operations. We continue to work on installing Verizon's fiber network in several states across the country. Verizon has reported that it closed 2007 with the addition of 226,000 new FiOS TB customers, bringing the total to more than a million. Verizon maintains its expectation to reach 3 million FiOS subscribers by the end of '08 and will pass 18 million premises with its fiber network by the end of 2010.

Our relationship with AT&T continued to expand in the fourth quarter with additional work performed primarily in the West, which is a highly competitive market for triple play services. AT&T's deployment plans across the United States include the installation of more than 38 miles of fiber at an estimated cost of $4 billion. At the end of the fourth quarter, subscribers to AT&T U-verse, the Company's next generation IP-based video service, totaled $231,000, which was up from $126,000 three months earlier.

AT&T announced a major expansion of its AT&T U-verse services to include the Company's Southeast region with deployment expected to reach approximately 30 million living units across 22 states by the end of 2010. We anticipate that we will continue to work with both Verizon and AT&T in various regions of the country as they continue their network buildout across the U.S. We're also active participants in requests for proposals from various municipalities around the country looking to deploy their own fiber networks.

As previously mentioned, our wireless operations are also experiencing strong revenue growth and margin expansion, and we expect this trend to continue. We believe the future holds a great deal of growth opportunity as carriers return to infrastructure investment to support deployment of new technologies and services. This follows a weak period during which carriers assessed market opportunities and evaluated emerging technologies. With these issues apparently resolved, they are increasing spending quickly. As we expected, the fourth quarter saw a return to historical spending levels, which we expect to continue throughout 2008.

The great fourth-quarter results from our wireless operations is due largely to a major project in the central United States, our largest turnkey wireless project to date. This project involves [SATA] acquisition, architectural and engineering services, construction services, equipment installation and integration. Our capability to perform these services largely in-house has increased our opportunities to respond to the needs of our customers.

We have discussed our wireline and wireless operations. Now I would like to turn my remarks to our Dark Fiber operations.

I talked on the last quarterly conference call about the Dark [or unlit] fiber leasing business acquired as part of the InfraSource acquisition. As we continue to integrate them into our existing operations, the benefits and diversity this service brings to our legacy operations becomes more evident. In addition to realizing significant margins traditionally, this business is also experiencing vertical market growth, particularly in the education and health care markets, where secure, high-speed networks are important. Probably the best indicator of this growth is annual new contract sales. This metric measures revenues expected over the entire contract period, which can vary from one year to 20 years, but the vast majority are for five years.

In 2005, new contract sales were approximately $35.5 million; in 2006, new contract sales were just over $50 million; and in 2007, new contract sales were about $147 million. These amounts represent additional revenues to be recognized over the contract period, beginning upon completion of construction of the networks.

We continue to be excited about the opportunities that this dimension brings in the future. James will discuss the CapEx commitment to support this growth, and expansion of our networks.

Turning back to our outlook for our combined telecom and cable operations, the widespread, sustained focus on network deployment by our customers and broad increase in spending in the telecom market segments we serve supports our positive outlook for the future. We believe 2008 is a year of significant opportunity during which revenue growth and margin enhancement and strengthening of our market position remain our top goals. We are excited and optimistic to about what the future holds for our telecom operations. And our year-over-year increase in backlog supports that belief. Twelve-month telecom backlog at 12/31/07 reflects a 25% increase over pro forma 12/31/06. James will discuss backlog in more detail shortly.

Looking forward, we continue to see opportunities for growth and the customers and geographical areas we serve. We anticipate another good quarter in the first quarter of '08 based on an initial review of our January preliminary results. We see continued strong growth momentum in our wireline, wireless and Dark Fiber operations from this review.

We believe that it is possible that a prolonged recession could have a negative impact on our customer spending patterns. However, recent pronouncements by the major telecom service providers in our industry, combined with our recent results in our near-term forecast and continued high demand for bundled services and high bandwidth applications, both data and video, wireless and fiber-based, support our positive outlook and opportunities to grow revenue and expand margins in 2008.

Now I'll turn the call over to James Haddox for a review of our financial results.

Thanks, Ken, and good morning, everyone. Before I begin my presentation, I want to apologize for the deluge of numbers I'm about to present. We've made an attempt to make our numbers as transparent as possible, but with a large acquisition, emergency revenues, unusual items, and unusual items as well as the addition of goodwill amortization during the periods, the numbers can become confusing. Therefore, I have sliced and diced the numbers in a number of ways to help the investor better understand our results.

Today, we announced record revenues of $879 million for the fourth quarter compared to $585.2 million in the prior year's fourth quarter, reflecting growth of approximately 50%. Pro forma for the acquisition of InfraSource, revenues in the fourth quarter of 2006 would have been $832.4 million. On a pro forma basis, revenue growth in 4Q '07 was 5.6%. When I refer to pro forma information throughout my discussion, I am referring to data prepared on a combined Company basis taking into account the acquisition of InfraSource as if it occurred on January 1st, 2006 or January 1st, 2007, as applicable.

This year's fourth-quarter revenue included emergency restoration revenues of approximately $56 million compared to approximately $66 million being earned in pro forma revenues in 4Q '06. Excluding emergency restoration revenues from both periods, pro forma revenue growth would have been 7.4% in the fourth quarter of '07.

Revenues for fiscal 2007 were also a record $2.66 billion compared to revenues of $2.11 billion for fiscal year 2006, resulting in full-year 2007 revenue growth of approximately 26%. Pro forma for the acquisition of InfraSource, revenues in fiscal year 2007 were $3.277 billion versus $3.102 billion in 2006, representing 5.6% pro forma revenue growth in 2007. Quanta's legacy companies were approximately 9.4% for the year ended 12/31/07 compared to the year ended 12/31/06, even though gas and ancillary revenues were relatively flat for the year. Quanta's legacy electric power revenues were approximately 14% for all of 2007 and telecom revenues grew about 13% for all of 2007.

During 2007, emergency restoration services produced approximately $142 million in revenues compared to approximately $122 million in revenues for all of 2006.

I want to remind you that we have changed our methodology for compiling revenue by industry. During 2006 and the first half of 2007, we discussed revenues by type of customer. However, we will now discuss revenue by type of work performed. For example, in the past, we many have performed certain telecom work for an electric utility or performed electric work for an ancillary customer. In the past, work was classified by type of customer. Now it will be classified by type of work performed. Many times, we may be performing all types of work on one job at the same time, making it difficult to allocate revenues and cost by type of work. While this method is still not precise, we feel that the information by type of work is directionally accurate.

On an as reported basis, revenues from electric, power and gas utility work during the fourth quarter of '07 increased by approximately $206 million or 50% over the fourth quarter of 2006. Pro forma for the InfraSource acquisition, revenues from electric power and gas utility work decreased by $8 million, I'm sorry, or approximately 1.3%. On a pro forma basis, if you further segregate the work between electric and gas, pro forma revenues from electric power work, excluding storm work from both fourth-quarter periods, increased by 5.5% quarter over quarter while gas work decreased approximately 14%. Quanta's legacy electric power revenues grew by 4.1% during the fourth quarter of '07 versus the fourth quarter of '06. Excluding emergency restoration revenues from both quarters would have resulted in an electric power growth of about 8%.

Telecom and cable work increased approximately 108% on an as-reported basis and about 60% on a pro forma basis quarter over quarter. Ancillary work increased about 7% on an as-reported basis and increased about 5% on a pro forma basis quarter over quarter.

We generated gross margins of 17.2% for the fourth quarter of 2007 compared to gross margins of 15.6% during the fourth quarter of 2006, for an increase of 160 basis points, even though there was less storm restoration work in the fourth quarter of '07 than in the fourth quarter of '06. Pro forma for the InfraSource acquisition, gross margins increased from 15.2% in 4Q '06 to 17.2% in 4Q '07 or 200 basis points. Pro forma gross margins increased in all major types of work performed during the period.

On an as-reported basis, our G&A expenses increased from $48.5 million in 4Q of '06 to $84.7 million in the fourth quarter of '07, primarily due to the acquisition of InfraSource in 3Q '07. G&A expenses are up from 8.3% in 4Q '06 to 9.6% in 4Q '07, primarily due to recording a loss of $4.2 million on equipment held for resale in 4Q '07 as a result of the InfraSource acquisition, higher integration expenses and higher bonus expenses as a result of higher profits.

EBITA for all of 2007 was $188.2 million on an as-reported basis or 7.1% of revenues compared to $131.2 million or 6.2% for 2006. A calculation of EBITA is set forth in the financial news section of our website at www.QuantaServices.com. We believe that EBITA will become a more important metric in the future as amortization expense associated with the InfraSource acquisition is expected to become a more material component of our income statement.

Amortization of intangible assets increased from $910,000 in 4Q '06 to $12.4 million in 4Q '07 due to the increase in intangibles resulting from the acquisition of InfraSource.

Interest income increased from $3.6 million in the fourth quarter of '06 to $4.6 million in the fourth quarter of '07, primarily due to higher average invested balances and higher average interest rates in '07.

Our effective tax rate for 4Q '07 and full year '07 was unusually low due to the reversal of tax contingency accruals that were no longer needed. Excluding those reversals, our effective tax rate would have been 39% and 41% for 4Q and full year 2007. The net income from continuing operations attributable to common stock for the quarter was $33.5 million or $0.18 per diluted share compared to a loss of $31.2 million or $0.27 per diluted share in 4Q '06. Adding back the non-cash goodwill amortization and non-cash compensation expense would have resulted in an adjusted net income of $43.1 million or cash EPS per diluted share of $0.23 compared to net income of $26.4 million or $0.20 per diluted share in the fourth quarter of 2006. A reconciliation of GAAP to cash EPS is provided in the tables attached to our press release issued today.

Our cash flow information is not final at this time. However, our current approximation of cash flow is as follows -- cash flow from operations totaled approximately $87 million for the quarter. Cash flow from operations less capital expenditures of $51 million resulted in approximately $36 million in free cash flow for the quarter. For the year, cash flow from operations totaled approximately $200 million. Subtracting CapEx of $110 million yields approximately $90 million in free cash flow for all of 2007. This strong free cash flow was achieved while experiencing a 26% increase in revenues for the year.

EBITDA was $243.6 million for all of 2007, representing an increase of 34.8% over all of 2006 on an as-reported basis. The calculation of this non-GAAP measure can be found in the financial news section of our website at www.QuantaServices.com. We've also posted to our website a calculation of adjusted EBITDA that adds back merger costs and non-cash stock-based compensation.

Our days sales outstanding or DSOs, which we calculate by using the sum of current accounts receivable plus cost and earnings in excess of billings, less billings in excess of costs, divided by average revenues per day during the quarter, were 76 days at December 31st of '07, versus a pro forma 83 days at September 30 of 2007 and 80 days at December 31st, 2006.

Turning to backlog, last quarter, we began expanding our disclosure related to backlog by adding a discussion of total backlog to our normal discussion of 12-month backlog. I'll take a moment to provide you with a definition of total backlog. Total backlog includes the amount of revenues we expect to derive in the future from signed contracts for project work and master service agreements. Backlog for project work includes the remaining revenues to be earned under lump sum projects and our estimate of the remaining revenues to be earned under time and equipment or unit price contracts. Backlog for master service agreements includes our estimate of future billings based on our knowledge of customer spending patterns under time and equipment and unit price arrangements through the end of the initial contract periods and through the end of any renewal periods provided by the contract for which we reasonably expect the contract to continue.

Our total backlog of work at 12/31/07 was approximately $4,671,000,000 million, which is $880 million or 23% higher than total backlog at 9/30/07. Unfortunately, we cannot provide you with any comparative total backlog data as of the end of 2006, since total backlog was not calculated at that date. Our 12-month backlog currently stands at $2.355 billion. This compares to pro forma 12 -month backlog for Quanta and InfraSource combined of $2.06 billion as of 12/31/06, an increase of $297 million or approximately 14% with $275 million of the increase being attributable to electric and gas work and $81 million being attributed to telecom work, primarily FTTX, offset by a decrease of $59 million attributable to ancillary work.

At year end, we had $407 million in cash and $306 million on available borrowing capacity under our $475 million credit facility. We had about $169 million in letters of credit outstanding, primarily to secure our insurance program. We currently forecast no need for additional borrowings during 2008.

Concerning our outlook for the future, our estimate of revenues from first quarter of '08 is from 810 to $840 million. Our revenue forecast for 1Q '08 includes about $12 million of expected emergency restoration revenues. Revenues for the first quarter of '07 included approximately $57 million in storm restoration revenues. Pro forma revenues for the first quarter of '07 were approximately $778 million. Subtracting actual and estimated emergency restoration revenues from the first quarters of '07 and '08 would yield an estimate of approximately 13% pro forma revenue growth in the first quarter of '08.

Our estimate of 1Q '08 EPS based on revenues of between 810 and $840 million is from $0.10 to $0.11 per diluted share on a GAAP basis. Our GAAP EPS forecast includes an estimate of $15 million for amortization and non-cash compensation expenses. Excluding these expenses, our cash EPS for the quarter is expected to be $0.15 to $0.16. This compares to as-reported diluted EPS of $0.23 for 1Q '07, which included a reversal of tax contingency reserves that benefited the first quarter of '07 by $0.10 per diluted share.

For additional guidance, we are currently projecting our tax rate for the first quarter to be approximately 41%. We expect our diluted share count be about 201 million shares during the first quarter, which include shares underlying our convertible subordinated notes. The net income add-back associated with the convert shares is approximately $3.2 million per quarter. For additional guidance, we also expect to earn less interest income in '08 on our cash balance due to the recent rate cuts that we have all experienced. We expect CapEx for all of '08 to be approximately $195 million. This compares to pro forma CapEx for Quanta and InfraSource combined for all of '07 of approximately $164 million. The higher CapEx level than previously discussed was primarily related to InfraSource operations, particularly their fiber leasing operation. As Ken discussed, our Dark Fiber services experienced a great deal of success in 4Q '07 in selling contracts for networks to be built during 2008 and 2009. The revenues related to CapEx to be spent on Dark Fiber networks in 2008 will begin to be recognized in the latter part of '08 or in '09.

In summary, we accomplished several initiatives during 2007 that strengthened Quanta. We enhanced our capabilities and geographic coverage through the acquisition of InfraSource and began to realize synergies. We improved our EBITA margins by approximately 90 basis points. We produced approximately $90 million in free cash flow and increased our cash balance to $407 million. We renegotiated our credit facility to lengthen maturities, lower borrowing costs and increase borrowing capacity. And finally, we achieved record levels of backlog going into 2008. We believe we are in a better position now than we've ever been to capitalize on increasing opportunities in our end markets and to pursue strategic acquisitions that will strengthen our geographic and service portfolio.

As John Colson, John Wilson, and Ken Trawick said, we continue to be excited about the opportunities for revenue and margin growth in the industries we serve, especially with our enhanced geographic spread and service portfolio as a result of the InfraSource merger and with the outlook for increased infrastructure spending in the industries that we serve.

This concludes our formal presentation, and Patty, we are now ready for questions.

(OPERATOR INSTRUCTIONS). Sanjay Shrestha, Lazard Capital Markets.

Good morning, guys. First of all, congratulations on a great quarter here and terrific backlog. Just a couple of quick questions. You gave out a lot of details on the numbers. I'm going to go back to the transcript on that, but gross margin improved some 200 basis points on a pro forma basis. So the question is, I know you guys don't disclose a gross margin or the margin profile in your backlog, but is it fair to say that it's not just a 14% jump in the 12-month backlog and 22% jump, but the margin profile of the project in your backlog has also gone up sort of similar to the gains that we've seen here on a year-over-year basis?

Yes, I don't know that we could say that they've gone up 200 basis points, Sanjay, but they are continuing -- the margin and backlog is continuing to steadily increase as old projects fall off and new projects come into backlog.

Great. So that trend continues despite the macro outlook and things of that nature? That's great.

Another point here, then guys, you just talked about two large projects here, a decision in the near future. Can you talk about how long those projects are going to go forward and sort of the potential magnitude of how big they might be? Or if you don't want to be very precise, at least a sense of north of this size, below this size, can you just put some parameters around it?

This is John Wilson. Are you talking about the two projects that we have bid?

Correct.

I would say both of them are approaching $200 million apiece, and at this point in time, we really wouldn't want to talk about customers or real locations at this point in time. But combined, you are looking at a pretty significant piece of transmission work is out there.

Completely understand. And also one last question, then guys. So obviously the margins are getting better, backlog is growing and you guys are also intentionally getting out of the lower-margin natural gas work, which is reflective of the revenue growth year over year on a pro forma basis in Q4; and it's certainly not a reflection of the underlying strength in your electric power, or the telecom side of the market. Just want to clarify that, correct?

That's absolutely right. What we're doing, to clarify a little bit on the gas business, as John indicated, we are transforming that gas business from a distribution gas business as much as possible into a petroleum gas business, where we are building lines for gathering fields and building gas transmission lines and metering stations and so forth.

So that's becoming a better margin business?

A better margin, faster growing business than the gas distribution business because the gas distribution business, of course, is affected somewhat by housing starts, but it's a lower margin business in any case.

Terrific. Once again, congratulations, guys.

Curtis Woodworth, JPMorgan.

Just a few quick questions. First off, on the pro forma growth this quarter, for the electric business, you said it was up 5.5%, gas is down 14, and the total was roughly flat. And in the first quarter you're guiding to ex-storm about 13% organic revenue growth. I was just wondering what is causing the sequential delta there and is it more of a comp issue or is it the transmission spending?

There's a number of things there involved in the fourth quarter and they're fairly complex. First of all, there was less storm work in the fourth quarter of '07 than there was in '06. The other is that the legacy companies of Quanta really grew at about 8%. But they were negatively affected by the difficult comparison with the storm work in 2006. 2006 storm work was primarily on the West Coast with higher wages, double-time for over time, and it was performed -- and this is an important fact, it was performed -- the storm work was performed over Christmas, the weekend before Christmas, Christmas Eve, Christmas, and New Year's Eve. So, therefore, you had a lot more overtime during a very critical period.

2007 storm work was finished before the holiday season and so those holidays and weekends, work was not performed. In fact, many of the crews knocked off during that period between Christmas and New Year's because they'd just come off of storm work and needed the rest. That really affected the growth in the fourth quarter we think more than anything else. Remember that revenue growth for our legacy group of electrical was 14% for the year.

Right. Okay. And then in terms of the first quarter guidance of 13% organic, is there -- given the visibility on the backlog and kind of what you're seeing in terms of spending patterns from the utilities and what their operating budgets have looked like for this year and what they're telling you, is there any reason why you don't think you would continue to get at least double-digit organic growth this year?

No, we anticipate double-digit organic growth this year with increasing margins.

And then in terms of the transmission part of the business, it feels like from the contracts you've announced and potential near-term activity, that the bulk of this work is really going to start in 2009 and 2010. And I'm wondering, could you frame for us the amount of transmission work that's in the backlog that you expect to start to monetize this year versus '09 and help us think about kind of the magnitude of benefit going forward?

Yes, I don't think we have those statistics available for this call. I'd be glad to do some research on that, but the amount of work for '08 is substantial. I think you are right that '09 will be even more substantial and probably 2010 will be even more substantial. But there's a number of projects we're working on now as Wilson outlined and some that are starting very soon and some are starting in the fourth quarter of '08. But I don't have off the top of my head how many millions of dollars that might account for.

Okay, but it's fair to characterize it that the next -- it's going to be sort of step function change in terms of the amount of spending that's going to go on in the industry. '09 is obviously going to be a big up year and you think 2010 will expand upon that, (multiple speakers) total work?

I was going to say it's very significant I believe for 2008, but more significant even in 2009 and beyond. We have several projects that we are currently working, others that we are starting for multiple utilities of the caliber of what I always refer to as mega-projects. So '08 is going to be fairly strong in transmission. '09 will be even stronger and then accelerating from there.

Great. Thank you very much.

Jamie Cook, Credit Suisse.

Congratulations. Just one other follow-up, John Wilson, from your prepared comments. I think you also said you are signing a mega-project or something with utility in the next coming days. Could you sort of give a little more color on the potential size and what that project entails? Is it something more like an MOU with Northeast Utility? I'm just trying to figure out -- get a little more color on that, I guess.

Sure, Jamie. I think I've given you about as much color as I can give you at this point in time. We will say that it is a multi-year contract that will span several different large transmission projects that will be covered in that multiple year contract. And at this point in time, that's about all I can say. Just stay tuned.

But would it be fair to say not in addition -- as you look at -- the MOU that you signed with Northeast Utility, I guess not commenting specifically on this one project, are there other utilities that you are working with and do you feel like there's more to come on that front and the size of the potential awards could be larger than the MOU with Northeast Utility?

You know, $750 million contracts is a pretty significant number. I think that's the largest in history that I'm aware of. They're mega-projects. Maybe not quite as large as that, but still very, very significant type projects, Jamie.

Not that -- just so we don't mislead you here, the project he's talking about being awarded in the next couple of days is nowhere near $750 million.

Okay, but it is fair to say your discussions with other utilities that would be similar to the contract you signed with Northeast?

That's right. There are projects out there, but none that are imminent of that size.

Okay.

Anything over $100 million is about all we talk about; those are very large projects for transmission. There are a lot of projects smaller than $100 million that we don't ever talk about or mention.

And then you also mentioned that one of the projects that you are, I think with Norwalk, I think you said something to the effect that you're finishing that early. Would that imply that, because you finish early, there could be some sort of performance award related to that and we could see that in the end of '08?

No, I think he was just indicating that it was a very large project and that timely completion is very important for our customers, and he's pointing out that we are completing ahead of time, which is very important to our customers.

Okay. And then I guess, James, just lastly, we are starting to see a nice improvement in the margins; before you did the InfraSource acquisition, you always sort of said a 9 to 12% operating margins. Can you -- in the next 12 to 18 months. Can you just sort of update where you sort of think we are in that, given the potential cost synergies with InfraSource and the revenue synergies and just the strength of the outlook there, when do we get there and is there a reasonably that we could do better than the 9 to 12% over the long term?

Jamie, we haven't really changed our guidance on that. We still think that we can get into the 9 to 12%, especially if you exclude amortization. I mean on an EBITA basis, we still maintain that the 9 to 12% margin is a reasonable margin for us to get into.

The timing is still difficult to predict as to whether it's going to be in the next 12 months or 18 months or 24 months, but we are making gradual improvements toward that. And we feel fairly confident that we will get there based on the margins that we see on jobs that we are currently bidding.

And then I guess just lastly, John, can you just talk to -- I think there -- can you talk to the projects that you are working on right now or the potential projects in backlog, is there anything you are concerned as you've sort of had time to look through what InfraSource has been working on or the stuff that they have in backlog? Do you feel comfortable that those projects are tracking according to plan or there would be no potential cost overrun?

We have analyzed their legacy backlog and have adjusted our forecast for any discrepancies that we saw or any downturns in those projects. So that's all built into our forecast. And as far as the 9 to 12% op income, I think it's safe to say that we will get the electric power and telecommunications, our core businesses, into that range probably in 2008.

The end of 2008?

(multiple speakers) C&I business are more difficult to get into that range and they will drag our overall margins down to some degree. But we should have our electric power and telecom into that 9 to 12% operating income in 2008.

Do you care to say high or low end in what quarter? Congratulations, guys.

Tahira Afzal, Keybanc.

Good morning, gentlemen. Nice quarter. I know you hate to talk about storm revenues, but could you give us a little bit of color on your guidance and why you've gone with $12 million? I know you commented earlier that West Coast last year was really good for you. I believe that storm activity has been really strong on the West Coast, so I would love to get a bit more color on that.

Yes, the reason we put 12 in is because that is what we -- that's approximately what we've done so far. It's impossible to anticipate how much storm work there will be or emergency restoration. I shouldn't always call it storm work. It's really emergency restoration work. The storms on the West Coast this year have really not caused any significant outages as they did in the fourth quarter of 2006. As James I think mentioned --

The first quarter of 2007 also had some widespread ice storms across the Midwest, and we haven't experienced that yet this year, from the standpoint of outages and work being created. So it's difficult to predict the same kind of quarter we had in the first quarter of last year, although it is possible if there is a major ice storm somewhere.

Okay. Fair enough. And then if I look at your first-quarter implied margins, if I take your GAAP EPS of $0.16 and compare it to the first quarter you had last year, it kind of implies around as you said 90 to 100 basis points improvement in operating margins. Would that include some of the $20 million in annual synergies for '08 that you have been projecting?

Yes. We have started realizing synergies and we will continue to realize those synergies in '08 as far as the $20 million is concerned.

Okay. So as we go forward, progressively, do we expect that level of synergies to increase if you compare it on a year-on-year basis?

Yes, we expect synergies to continue to increase over the next three years is what our goal is.

Okay great. And I assume you can't really comment on anything beyond the 20 million so far?

I'm sorry, say that again?

Well, there is a -- there's something to discuss on that that we feel is a synergy, but it's an example of why we can't really nail it down because we may have gotten the Northeast Utilities job without acquiring InfraSource.

Right.

One synergy that we like to talk about as a revenue synergy is the fact that after we acquired InfraSource, we obtained the largest contract in history for electric contractors by entering into an exclusive agreement for $750 million of Northeast Utilities. Now, would that job have happened without the InfraSource acquisition? Maybe.

But with the InfraSource acquisition, it became more apparent to Northeast Utilities that we were the predominant contractor and that they needed to lock up resources in order to assure that their build would occur. So is that a synergy or is that not a synergy? And if you feel it's a synergy, how much money are you going to apply to it?

I guess that depends on the margins on that business, right?

Right. And that's an example of why it's sort of difficult to actually calculate it or project it from a timing standpoint, but we feel that that's a big synergy that's been earned as a result of the InfraSource acquisition, which would way overshadow the 18 to $20 million that we've been talking about, which is really cost savings for back office consolidations.

Fair enough. And if you look at that on that note and you look back, you've won now I guess three to four large higher transmission voltage projects over the last year. Where would you put your market share in the high voltage space in terms of these large projects now?

Well, we would have to define what we're talking about as large projects. Certainly our market share in projects over $100 million is fairly high. But in our overall transmission, it's probably still in that 10%, maybe up to 15% of total transmission work across the country.

Right. And as you see, the transmission space developing over the next couple of years, would you say that the high-voltage large project size awards will gain a larger share?

That's certainly our intention. There are a number of large projects out there as Wilson has indicated earlier and it's our intention to continue to gain market share not only in those mega-projects, but also gain market share in the smaller projects as well.

Okay, fair enough. And last question, in terms of your net awards, which anyone can kind of back-calculate into using your backlog number, it seems that you had net awards outside of the $750 million Northeast project in the range of around $1 billion. So would that kind of be the run rate we should be looking at outside of any large-size projects?

Would you repeat that number again?

Sure. It's around $1 billion. So I'm just taking your backlog -- total backlog number and --

The total backlog increased $880 million.

That's correct. And just using your revenue numbers versus your backlog as of last quarter, total backlog, gives you around $1.76 billion. And if you take out the $750 million award, it kind of looks like your net awards for the quarter were around $1 billion.

Oh, you are talking about -- oh, I see what you mean, as far as burn rate.

Right, right. Would you say that --

Track revenues earned during the quarter from that backlog. I see what you mean.

That's correct. Is that what we should expect outside of your large awards, so take the $750 million award out?

Backlog is going to come in chunks, as some of these big projects are awarded. We expect to continue to see strong backlog growth. We're at record levels and have been record levels of backlog for a number of quarters. So I'm not going to projects how much backlog is going to grow each quarter. But we expect it to continue to grow, even as there is some lumpiness in these big projects, as obviously you're not going to pick up a $750 million project every quarter.

Jeff Beach, Stifel Nicolaus.

Congratulations on a good quarter, a good year. A couple of general questions. Can you -- there's a lot of wind projects that are in planning, moving ahead here. Can you describe to date here within the wind projects you've been doing, or looking ahead at in '08, kind of the range or the size of wind projects that you are either doing or addressing? And then if you are doing a wind project, what are the services there? Are you doing more services, more content in a wind project than a standard transmission project?

Of course, for a wind project, we do the traditional T&D contractor portion, the transmission line, the substation, switchyards, even some of the gathering lines for the individual windmills.

But what we're trying to do and what I was talking about there is expanding our role in those generating fields to do more of the work.

We are very capable of doing the entire project; that's something that we haven't done because those margins in those projects have been lower than our acceptable projects. But, in the past. But now, there is more and more of these wind farms being planned and being built and we intend to get more of the individual budget for a wind farm and perhaps even build some entirely on our own.

Okay, good. Just moving over and roughly the same thing on the outside of the renewable projects, on the transmission projects you are doing now with InfraSource and bidding on I assume, a lot of these projects not only the towers and the lines, but a lot more substation, are you doing -- are you bidding on more content? And is it expanding past lines, towers and substations into a lot of maybe excuse me, turnkey work on smaller projects in general?

Yes, I think that's an area where we talked about, James talked about the synergies on the $750 million project. That's one area where synergies are really hard to measure because we're getting a lot of revenue synergies from our operating companies working with InfraSource's group that designs and builds substation and trying, again, to get more of the customer's budget in regard to those individual projects. And that's working very well, but it's 3 or $4 million here and 3 or $4 million there. It's not that big mega-projects that everyone likes to talk about. But in total, I think those synergies are probably as significant as some of the synergies we see in those mega-projects.

The last question, just a ballpark guess here. On the transmission side, what percentage of the new projects, I guess I will call them, new construction, is there electrified work involved that gives you an advantage?

Jeff, a lot of your new builds, there's not a tremendous amount of energize work. But what we are seeing is a lot of the utility companies, because of the constrained nature of our overall transmission system, so many of the lines at the present time need to have maintenance and work performed on them and the utilities do not have the luxury any more of taking those lines out of service.

Just to give you one example, one of our operating units from the InfraSource group recently just underwent our bare-hand training. We trained on a utility system that had never utilized the energize work on the transmission system and at the completion of the training process, they awarded them a purchase order to continue that crew on that system for the rest of the year, working energize maintenance work. So right there is a big pop for our energize work. Then once you are there on that system doing that specialized, high-technical skill level type work, they immediately then just start funneling more projects to you on everyday basis, and that's outside of your so-called mega-projects that come up from time to time. So we're pretty excited about the energize piece, pushing that into our InfraSource companies and delivering that service to the companies that they were working with. That's just a huge bump for revenue for us.

And the other side of the coin, it's really been a big morale booster for the employees because they feel like there's something special now because they are able to do this energize work and have the proper tools and the training necessary to do it. So we're getting good bang from our customers because of it and from our employee base.

All right, thank you.

I think we have run way over, but we will take one more question.

Alex Rygiel, FBR.

Thank you, gentlemen. I will try to keep it short. It looks like your -- I've got a lot of questions this morning about your first-quarter guidance with the appearance that it is light and I disagree with that, but I wanted to run some things by you. Clearly, your organic there growth guidance in the first quarter is very strong at 13%. If you were to look at the embedded margins, it would imply that you've got even a more positive outlook as it relates to embedded margins on a seasonal basis from 4Q to 1Q than you traditionally have. Is that a fair statement to make?

Alex, I'm not sure I understood what you were saying. It would imply that margins are better on a seasonally adjusted basis or margins are better in the 1Q than 4Q?

The margins embedded in your guidance are better than you would normally forecast in a seasonal period in the first quarter.

Yes, I think it's an indication that margins are continuing to improve.

It is. I mean we are expecting margins to be higher in the first quarter of this year than last year despite the fact that the storm restoration revenues projected are quite a bit lower.

And I guess the math behind my question is, if you were to look at your sequential 4Q '05 to 1Q '06, when storm revenue declined from $70 million to $20 million, a similar sequential decline. Your margins in those two periods declined by 460 basis points and that's your gross profit margins. But your guidance in the first quarter of '08 would not imply that your margins are down that much sequentially. So that backs up to say it would appear as if you have a more positive outlook on the sequential move here than you have in the past.

Yes, that's right. You're going a long way back when you start talking about '05 and '06, so I can't answer the reason for that, but yes, you're right.

Fair enough. The mega-project you talked about a little bit sounds like it's probably a couple hundred million dollars. Is that a new customer or an existing customer?

Well, we have performed work for that customer in the past, but not any work within probably the last 12 months.

Okay. And then as it relates to the gas business, can you quantify the gas distribution business as a percentage of the total gas business?

Can you do that, James?

No. Not off the top of my head, I can't.

Not without doing some more work we couldn't.

Is it about 50-50? Is it about one-third? Is it about two-thirds?

It's probably close to 50-50, but we're going to try to make that higher petroleum related gas-field related work than gas distribution, but probably running now 50-50. That's a guess, I mean.

I would really have to do a little bit more digging into detail on that. But you're probably not very far off.

That's outstanding. Gentlemen, congratulations on a nice quarter.

Thank you very much.

Thank you. And we have no further questions at this time. Please continue with any closing remarks.

Okay, thank you. I'd like to thank you again for your participation in our fourth-quarter and year-end conference call. We appreciate your questions and ongoing interesting in Quanta. Thank you, again.

Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation. You may now disconnect.