Quanta Services Inc (PWR) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen. Thank you so much for standing by. Welcome to the Quanta Services first quarter earnings call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded today on Wednesday the 7th, of May, 2008. I will now turn the conference over to Mr. Ken Dennard with DRG&E.

Thank you and welcome everyone to Quanta Services conference call to review 2008 first quarter 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 email or fax distribution list to receive future press releases from Quanta or if you had any technical difficulties this morning and did not receive your e-mail or fax please call our offices at DRG&E. That number is 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 wwwquantaservices.com. In addition, there is a telephonic recorded instant replay will available for the next week, and that will be accessed as set forth in the press release with the number 303-590-3000 using the pass code 11113666.

Please remember that information reported on this call today -- speaks only as of today May 7, 2008, and therefore you are advised any time sensitive information may no longer be accurate as of the time of any replay listing. 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 and particular markets, Quanta's strategies and plans, anticipated future projects, expected benefits from the merger with InfraSource Services and any other statements reflecting Quanta's expectations, intentions, and assumptions or beliefs about future events or performance or that do not solely relate to historical or current facts. Actual results may differ materially from those expected or implied as forward-looking statements and management cautions that you should not place undue reliance on these forward-looking statements.

Forward-looking statements involve certain risks, uncertainties and assumptions that are difficult to predictor are beyond Quanta's control. For additional information concerning some of these risks, uncertainties and assumptions that could affect these forward-looking statements, please refer to the Company's annual report on Form 10-K for the year ended December 31, 2007, and its other documents filed with the Securities & Exchange Commission that may be obtained through the SEC's website at www.SEC.gov. All such forward-looking statements 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 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. Welcome to the Quanta Services first quarter 2008 conference call. To start the call this morning I will provide a general overview of the quarter, 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, President of those operations, and a review of financial results by James Haddox our Chief Financial Officer. Ken Trawick, President of Quanta's Telecom and Cable operations is also present to answer questions. After our prepared remarks we will open the call for questions.

The first quarter of 2008 set the stage for another outstanding year for Quanta. The quarter's results include revenue contribution by operations added through the acquisition of InfraSource in August of 2007. Revenues for the quarter were approximately $844.4 million. This compares to $569 million in the first quarter of 2007 which did not include InfraSource.

Internal revenue growth was approximately 15% compared to the first quarter of 2007 including InfraSource and excluding emergency restoration revenues from both periods. Quanta's growth is not isolated to revenues, however. Margins continued to improve in the first quarter, and operating income grew significantly. While there is talk of a recession and the housing market has declined, our first quarter results were not significantly impacted.

It is no accident that our first quarter performance was outstanding and that our outlook for the future is optimistic. We built our Company to have a diverse customer base and the flexibility to shift our operations to meet growing needs in the industries we serve. Our optimism about the future of Quanta is primarily attributable to two factors. One, our unique business model which provides diverse revenue streams and the flexibility to respond to changing customer demand and economic conditions. Two, increased demand for our services and the financial strength of current and potential customers in the industries that we serve.

To illustrate this fact in recent months utility stocks have outperformed both the S&P 500 and the Dow Jones Industrial Average. The fact that electricity is an essential commodity enables utilities to consistently generate stable revenues and pay predictable dividends. Roger Conrad, Editor of Utility Forecast last week stated, and I quote, "Utilities are in the peak of health and judging from bullish 2008 guidance aren't feeling the pain of recession. They're looking to get stronger in the coming year", end quote.

John Wilson will talk in more detail about our electric power and natural gas operational performance including project updates. Before I hand the call over to him, I want to outline some of the high level industry trends and the current outlook. Comes down to this, the upgrade of the nation's transmission infrastructure needs to happen. Regardless of the economic environment, people continue to require power. Considering the low debt to capital ratio of utilities, which is at the lowest point in 30 years, utilities have the ability to finance grid improvements to meet this growing demand. Numbers and estimates of the level of investment required to upgrade the grid do change from time to time, but they are not decreasing.

The latest estimates presented last month at an industry forum by The Brattle Group state that growing demand for electric services will require investment on the order of $1.5 trillion between now and 2030. When you look at the news from various utilities throughout the nation, that's no surprise. Several utilities have announced new transmission initiatives in recent months. Public Service Electric and Gas just announced plans to spend $1.6 billion over the next five to eight years to upgrade its transmission lines, replace its aging energy delivery system and maintain the reliability of the power grid. These are familiar words echoed across the industry.

FERC, the Federal Energy Regulatory Commission continues to provide support for these initiatives as set forth by the Energy Policy Act of 2005. In a March press release FERC stated that investment levels have nearly doubled in recent years. As it has in the past few quarters, FERC continues to grant incentives to encourage investment in the interstate power grid. Another item that will fuel transmission development and spending is the Department of Energy's denial of the request for rehearing of the Mid-Atlantic Southwest Area National Interest Electric Transmission Corridors. This action affirms the National Corridors and enables transmission line installation along the designated routes to move to the next phase of the (inaudible).

The final strength of our customers or the financial strength of our customers both power and telecommunications continues to grow. For example, Verizon reported stronger than expected profit growth and attributed that growth to their wireless and high speed Internet subscriber expansion. Our telecom and cable operations continued to perform strongly in the first quarter of 2008. Our work and outside plant operations to support fiber to the node or fiber to her the premise initiatives for service providers continues to be the primary contributor to this growth combined with strong growth from our wireless division.

Initiatives by the RBOCs as well as rural carriers and municipalities are providing continuing opportunities for us to expand our operations and deliver installation services across the United States. These opportunities are generally not significantly affected by slow housing markets as this is an effort to build an entirely new network to replace the existing copper-base network to service both new and existing housing units. In the first quarter the FCC announced the official close of the 700 megahertz auction and released the winners of other Spectrum licenses. The winners of the 700 megahertz auction was largely Verizon Wireless and AT&T two of our largest telecommunications customers. We anticipate that this will contribute to additional network upgrades on wireless systems as broadcasters vacate Spectrum and the carriers deploy new infrastructure to capitalize on the newly allocated Spectrum resources.

Our Dark Fiber division continues to deploy fiber assets to support a record year of sales in 2007. We anticipate continued strong demand for our Dark Fiber services in all of the markets that we serve. We recently strengthened our telecommunications and cable capabilities in the Southwest region of the U.S. with the acquisition of Arizona-based Pauley Construction Inc. Pauley provides design, project management, fiber and cable installation and repair services to telecommunications customers throughout the region. The primary service territory includes Colorado, New Mexico, Arizona, California, and Texas. Pauley is a strong addition to our existing operations and will help us meet the growing need for services in the region. We're very proud to welcome Pauley into the Quanta family of companies.

As I stated at the beginning of the call we believe the diversity of our business is a key strength moving forward. Our largest customer for the quarter made up only 4.7% of our revenues. Our top 10 customers for the quarter equaled 30% of our total revenues, and our top 20 customers made up approximately 43% of revenues. To increase the clarity of our revenue breakout we present revenues by type of work. When divided by type of work for our 2008 first quarter revenues, we're approximately 58% from electric power services, 16% from natural gas services including pipeline integrity, 17% of revenues were from telecommunications and cable services, 7.4% from ancillary services such as horizontal directional drilling and commercial and industrial wiring and 1.6% from Dark Fiber leasing services.

At the end of the first quarter our employee count was 15,909. This compares to 15,261 at the end of the fourth quarter. As our utility customers face a challenging mixture of reliability and renewable standards, tax incentives and siding 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 increasingly competitive industry dynamic means they need their network built quickly, efficiently, and safely. We believe Quanta is the contractor of choice in these circumstances. The year is off to a good start, and our backlog reflects that we will continue to deliver value to all of our stakeholders, our customers, our shareholders and our employees. Now I will turn the call over to John Wilson who will discuss the recent developments in our electric power and natural gas operations. John.

Thank you, John, and good morning, everyone. As John mentioned, we're very aware of the current economic climate and remain more optimistic about the future for Quanta. The diversity of our operations and strong relationships with a broad customer base resulted in solid first quarter performance. Our revenue diversity and customers' financial strength combined with an ongoing focus on rebuilding the nation's transmission grid, continued momentum behind the Energy Policy Act of 2005 and new growth in renewable power generation provide a strong basis for our optimism. These trends are reflected in our growing backlog.

Twelve-month backlog for the electric power and natural gas operation at March 31, '08, was approximately $1.85 billion, total backlog for the electric power and natural gas operations at March 31, '08, was approximately $4.11 billion compared to $3.75 billion at the close of 2007. James will discuss comparative backlog in more detail shortly.

While emergency restoration work was not a significant contributor to our financial performance in the first quarter, we did continue to support various utilities to restore power to their service territories. We deployed crews following ice storms in the Midwest and in response to communities impacted by tornadoes in the south. Total revenues from emergency restoration work in the first quarter of 2008 were $35 million less than in the first quarter of 2007.

To update you on specific projects and new contracts, in the first quarter we announced a contract with Lower Colorado River Authority, LCRA at an estimated value of up to $194 million. The initial phase of this project is already under way. Over the five-year contract we will provide new construction and repair, maintenance services including right of way preparation, environmental controls, structural foundations, structure installation, conductor stringing and energizing in the new transmission lines as well as reconstruction of existing transmission lines. This is just one more example of our ability to support utilities as they focus on expanding transmission infrastructure.

This contract builds on an existing relationship with LCRA. We have performed various infrastructure services on the LCRA system over the past three years including a variety of transmission projects throughout central Texas in 2006. Our Middletown to Norwalk 345,000 volt transmission job which is part of a 2006 contract with Northeast Utilities remains ahead of schedule. Foundations are complete. Steel structures are 90% complete, and conductor stringing is more than 80% complete. We anticipate that this job will be completed in the third quarter of this year.

The preplanning stages of the $750 million contract within continue to move forward. We expect to begin smaller transmission make-ready projects to prepare end use transmission grid for construction in the fourth quarter of this year. Full construction of this transmission line is on track to begin in the fall of 2009. The work under the contract is now reflected in our total backlog numbers which remain at historically high levels.

We're also poised to start work on Allegheny Energy's 210-mile 500,000 volt TransAllegheny Interstate Line known as the TRAIL project in late 2008. Allegheny is currently working to secure appropriate approval from the State Public Utility Commission.

Shifting now to our ongoing focus on developing renewable power sources, Quanta brings a decade of experience in the construction of wind generation facilities including but not limited to foundations, urban assembly and construction of the collections systems, substation and transmission infrastructure. We're leveraging these proven capabilities to help utilities meet new renewable portfolio standards and to support the short timelines and broad service scope sought by developers and utilities. One of the most publicized renewable projects is the Tehachapi renewable transmission project. In the first quarter construction began on what is currently the nation's largest wind transmission project. Under our contract Quanta will install 75 miles of 500,000 volt transmission line which will be part of a 1.8 billion program to provide the high voltage transmission infrastructure necessary to interconnect and deliver the renewable wind sources being developed in the Tehachapi wind resource area to California electric customers. The new lines are expected to be in operational in 2010.

Our renewable portfolio of work continues to grow. We have secured key contracts for the construction of wind farms as well as for related infrastructure. In all, contracts from renewable services are approaching 140 million. Excluding one contract in the northern U.S. which I will discuss shortly, all of this work is reflected in our backlog.

In Minnesota we'll be contributing to the construction of the Elm Creek wind farm through a contract with [Ibanola] renewables. Construction will begin in the next few weeks and is scheduled for completion by the end of the year. The wind farm consists of 66 turbines, multiple Quanta operating units will perform, the collector substation and underground collection system and overhead collector system consisting of approximately 8.5 miles of double circuit construction. We will be performing similar work in Oregon for Ibanola under a separate contract. Construction of the Pebble Springs wind farm near Arlington, Oregon, is expected to begin this month and be completed in six months. The wind farm there includes 46 turbines.

We have also completed negotiations and are awaiting a final signed contract for the construction of 60 miles of 230 Kv transmission line to deliver power from a wind farm in the northern part of the U.S. As indicated earlier, this contract is not currently in backlog. However, we will update you on this project as it gets under way in the second quarter. We continue to leverage our expanded technical consulting expertise through our Quanta Technology organization. The high level technical consulting services provided through this group are regarded as best in class by the industry. Additionally, the synergies between this group and our construction focused operations bring added value to our customers by optimizing and streamlining the transition between research and dated analysis, engineering and construction.

Our gas fields are growing, particularly in north Texas where we are providing extensive pipeline installation work to build the systems required to transport natural gas from the Barnett shale. The majority of this work was originally under two contracts totaling more than $90 million for two utilities in north Texas. However, we continue to expand the scope of work being performed under the existing contracts and we are securing additional projects within these customers. You can see why our outlook for the future remains strong. We expect to continue to grow our revenues within our existing core expertise while maximizing margin. In tandem we will evaluate and aggressively pursue opportunities that further diversify our service offerings through the application of our existing knowledge base. We believe this approach will continue to be the formula for success for Quanta. Now I will turn the call over to James Haddox who will review our financial results for the first quarter. James.

Thanks, John. Good morning, everyone. Today we announced record first quarter revenues of $844.4 million compared to $569 million in the prior year's first quarter resulting in an increase of $275.4 million or 48%. Pro forma for the acquisition of InfraSource revenues in the first quarter of 2007 would have been $772.8 million. This year's first quarter revenues included emergency restoration revenues of approximately $22 million compared to approximately $58 million being earned in pro forma revenues in 1Q '07. Excluding emergency restoration revenue from both periods, pro forma revenue growth would have been about 15% in the first quarter.

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 1, of 2007. The as-reported results of operations covered in my discussion include the results of InfraSource for the first quarter of 2008 and are compared to Quanta's premerger historical results for the first quarter of 2007.

I want to remind you that we changed our methodology for compiling revenue by industry. Between the first half of 2007 we discussed revenues by type of customer. However, we now discuss revenue by type of work performed. For example, in the past when we performed telecom work for a utility, the associated revenues would have been classified as utility work. Under our current methodology these revenues would be classified as telecom work. Keep in mind many times we may be performing all types of work on one job at the same time which requires us to estimate revenues and costs by type of work. However, we believe that the information by type of work is directionally accurate.

On an as-reported basis revenue from electric power work during the first quarter of '08 increased by approximately $150 million or about 45% over the first quarter of '07. On a pro forma basis excluding storm restoration work, from both first quarter periods, electric power work increased by about $50 million or 12% quarter over quarter. Gas work increased approximately $58 million or 75% on an as-reported basis and about $25 million or about 22% on a pro forma basis quarter over quarter. Telecom and cable work excluding Dark Fiber leasing increased approximately $74 million or 107% on an as-reported basis and about $58 million or 68% on a pro forma basis quarter over quarter. Ancillary work decreased about $21 million or 25% on an as-reported basis and decreased about $29 million or 31% on a pro forma basis quarter over quarter.

We generated gross margins of 14.7% for this quarter compared to 13.6% during last year's first quarter, a 110 basis points gain that was primarily due to improved pricing, the contribution of higher margin Dark Fiber work and better fixed costs absorption as a result of higher revenues. On a pro forma basis last year's first quarter gross margin was 13.8%. The increase in gross margins on both an as-reported and pro forma basis occurred despite having over $30 million less emergency restoration services service work in the first quarter of '08 as compared to '07, work which typically carries higher margins. On an as-reported basis D&A expenses were $70.7 million in the first quarter of '08 and were down approximately $14 million compared to the fourth quarter of '07. D&A expenses were $49 million in the first quarter of '07 on an as-reported basis. The increase over 1Q '07 was due primarily to the acquisition of InfraSource, higher salaries and benefits associated with increased personnel, salary increases, and increased performance bonuses. D&A expenses were down to 8.4% of revenues in 1Q '08 compared to 8.6 in 1Q '07 and compared to 9.6% in 4Q '07. D&A degreased $7.9 million when compared to pro forma G&A for the first quarter of last year of $78.6 million.

Operating income before amortization or EBITDA for the first quarter of 2008 was $53.2 million on an as-reported basis or 6.3% of revenues compared to $28.6 million or 5.0% for the first quarter of 2007 for an improvement of 130 basis points. Our first quarter margins are typically the lowest of the year due to seasonal weather conditions. The calculation of EBITDA is set forth in the financial news section of our website at www.quantaservices.com. We believe that EBITDA has become a more important metric as amortization expense associated with the InfraSource acquisition has become a more material component of our income statement. Amortization of intangible assets increased from $772,000 in 1Q '07 to $10.6 million in 1Q '08 due to the increase in intangibles resulting from the acquisition of InfraSource and two other small acquisitions.

Turning to taxes, during the first quarter of 2007 we recorded income tax benefits of approximately $15.3 million primarily due to the settlement of a multiyear IRS audit which resulted in the reversal of tax contingency reserves that were no longer required. Excluding these benefits our effective tax rated would have been 14.7% in both the first quarter of '07 and the first quarter of '08. -- 41.7%. I am sorry. Net income for the -- that's 41.7% tax rate. Net income for the quarter was $24.3 million or $0.14 per diluted share. This compared to adjusted income from continuing operations of $15.5 million or $0.12 per diluted share in the first quarter of '07 which is adjusted to exclude the reversal of the $15.3 million in tax contingency reserves. Adding back noncash intangibles amortization and noncash compensation expense for both periods resulted in adjusted net income of $33 million or adjusted cash earnings per diluted share of $0.18 for the first quarter of 2008. This compares to adjusted income from continuing operations of $17.1 million or cash earnings per diluted share of $0.14 in the first quarter of 2007 which again is adjusted to exclude the reversal of the $15 million in tax contingency reserves. A reconciliation of GAAP to cash EPS is provided in the tables attached to our press release that we issued today.

Cash flow from operations totaled approximately $15.2 million for the quarter. Cash flow from operations less $51 million of capital expenditures net of proceeds from sales resulted in approximately $35.8 million in negative free cash flow for the quarter. Cash flow for the first quarter was negatively impacted by higher working capital requirements associated with invoice processing issues by certain customers as a result of the rapid ramp up of FTTX and wireless installations over the past six months coupled with higher working capital requirements as revenues in the last month of the first quarter were higher than the last month of the fourth quarter.

The specific telecommunications work being performed and significant billing requirements and have been subject to lengthy delays as our invoices worked their way through the customer's payment system. With the addition of IFS and specifically the Dark Fiber leasing operations, capital expenditures have increased. Of the $51 million in net CapEx this quarter, $20 million was related to Dark Fiber additions. Adjusted EBITDA was approximately $76.1 million or 9% of revenues for the first quarter of 2008 representing an increase of 78% or 150 basis points over the first quarter of 2007 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.

Turning to backlog, two quarters ago we began expanding our disclosure related to backlog by adding a discussion of total backlog to our normal discussion of 12-month backlog. I will 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 a remaining revenues to be earned under lump sum projects and our estimate of the remaining revenues to be earned under retirement equipment for unit price contracts.

Backlog for master service agreements includes our estimate of future billings, based on our knowledge of our customer's spending patterns under T&E and unit price arrangements through the end of the initial contracts period 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 March 31, 2008, was approximately $5.168 billion which is approximately $496 million, or 10.6% higher than total backlog at 12/31/07, just three months ago. Our 12 month backlog currently stands at $2.385 billion. This compares to 12 month backlog of $2.355 billion as of 12/31/07, and increase of $30.5 million with $2.5 million of the increase being attributed to electric and gas work, $11.6 million being attributed to the telecom work, primarily FTTX and $10.2 million attributable to ancillary work primarily from a fuel systems job in San Jose, California, and $6.2 million being attributed to Dark Fiber leasing.

We remind you that our traditional bidding season is just getting under way and we expect to continue to see increases of 12 month backlog at the end of the second quarter. Our day sales outstanding which we calculate by using a sum of current accounts receivable plus cost of earnings and excess of billings less billings and excess cost divided by average revenues per day during the first quarter were 83 days at March 31, 2008 versus 76 days at March 31, '07 and December 31, '07. At quarter end we had about $372 million of cash on our balance sheet and $301 million available under our [$475] million credit facility. We had $174 million in letters of credit outstanding primarily to secure our insurance program.

Concerning our outlook for the future we estimate our revenues for the second quarter of '08 to be from $880 million to $910 million. Revenues for the second quarter of '07 were approximately $792 million. Using the midpoint of our 2Q '08 range this represents projected internal growth of about 13% on a pro forma basis. Our estimate for 2Q OI EPS is from $0.17 to $0.19 per diluted share on a GAAP basis. Our GAAP forecast includes an estimate of $13.6 million for noncash amortization of intangible assets and noncash compensation expenses. Excluding these expenses our cash EPS for the quarter is expected to be $0.22 to $0.24 per diluted share which compares to cash EPS of $0.18 per diluted share for 2Q '07. For additional guidance we're projecting our tax rate of approximately 41.7% for the remaining quarters of 2008. We expect our diluted share count to be about 201 million shares during each remaining quarter of the year. Excluding the effect of any acquisitions. We continue to expect CapEx for all of '08 to be approximately $195 million.

In summary, we believe our strong results in the first quarter combined with our growing backlog and diverse revenue base provide the foundation for another -- for an outstanding future for Quantum. This concludes our formal presentation and we'll now open the line for Q&A. We're ready for questions.

(OPERATOR INSTRUCTIONS) Our first question is from the line Tahira Afzal, please state your company name followed by your question.

This is Tahira from KeyBanc, guys, many congratulations on a super quarter.

Thank you.

If I look at your 15% organic growth rate contribution for the first quarter, definitely better than I thought. Is this something that you see as sustainable as you progress through the year, and what do you think would be the risks to this particular growth rate if there were any?

We anticipate and projected double digit internal growth for the foreseeable future for the Company. I Think that the only things that we could see that possibly could do it would be a long deep recession that could affect some of our customer spending. Typically our customers are not affected by shallow or short-term recessions to any extent. But I think a long-term deep recession might affect that growth to some degree.

It is interesting you mentioned the Brattle Group presentation because I attended that at the Edison Electric institute, and from all the senior utility representatives there versus the state regulators, the only thing that they seemed to agree on was that the transmission spending was pretty clear and the spending was there. I did feel that the utilities were incrementally more aggressive in terms of pushing these projects through, and I just wanted to gauge what you think from your clients?

We're seeing the same thing. Thanks for the support there. It is helpful to have a second party confirm what we've been seeing, but yes, we're seeing our utility customers being aggressive towards their transmission buildout. We don't want to get into a position where we heighten and responding to every headline that our customers are producing, but certainly the momentum is there on the utility side and continues to be there because, partially because balance sheets are very strong right now, and they have incentives from the energy policy act as well.

Thank you very much. I will get back into queue with additional questions. Thank you.

Thank you.

Thank you our next question is from the line of Alex Rygiel. Please state your company name followed by your question.

Thank you. FBR. Good morning, gentlemen.

Good morning.

A couple quick questions. First, James or John or John, approximately what was your annual revenue from the wind and solar customers in 2007 and about what do you think it could be in 2008?

We really don't have the statistic for 2007, but it was fairly minimal. I am guessing less than $50 million for the whole year. Is that your guess, too, James?

That sounds right.

It wasn't worth measuring.

Yes.

It could be double what Wilson talked about for 2008 depending on how successful we are in some of these projects that we're bidding. We're seeing some pressure on pricing as contractors are coming from other sectors into the wind business, but we've been fairly successful and I expect to have some success going forward, so it could be double what Wilson was talking about which would be nearly 300 million.

And then as it relates to your gas business in the Barnett Shale can you also go through the same sort of analysis '07 versus '08?

Well, while James is looking that up, if he has that information, I don't know if we have it particularly for '07 because it it wasn't particularly as strong in '07 or consequence in '07, but certainly in '08 we are doing a lot more work up there, and that's intentional. We've been focusing on doing more work in the oilfields and gas fields as that's a faster growing market and a better margin business than the traditional gas distribution business.

One last question, as it relates--?

-- came up with that number, so we'll -- again, it was probably not of consequence in '07.

One last question as it relates to the TRAIL project. Is that in either one of the backlog figures at this time?

It is in the full backlog, the multi-year backlog, yes.

Not much in the twelve-month backlog, though.

But the Infinity backlog.

The Infinity total backlog, but not much is in the twelve-month backlog.

Great. Thank you.

Thank you. We'll take our next question is from the line of Sanjay Shrestha. Please state your company name followed by your question.

Lazard Capital markets. Congratulations on the quarter and the outlook here. Just a quick question. John, I think you mentioned in passing a little about the you don't get impacted unless it is a long slowdown more than a quarter or two, so can you talk about that a little bit as to let's say it ends up becoming that type of a slowdown so is it fair to say that you'll just weather that storm and you would not see any impact at all to the growth rate you guys are seeing right now and can you tell us a little historical data point as it relates to what you've seen in the business that you guys are in as to some of the past slowdowns and the impacts of it?

I guess this is my 37th, going on my 38th year in the business and I have seen two major slowdowns in the utility business. One obviously was in 2001 when the telecommunications market collapsed and the energy trading business collapsed with Enron, those sorts of things. The utilities had major investments in the telecommunications business, and were suffered when the telecommunications market collapsed. The other major downturn was back in the late 70s, early 80s when interest rates were 17 and 18%, and it is the first fuel crisis we had, the Iran Contra crisis and e had a shortage of fuel. Those two are the only downturns in my 38 year career. For instance, in 1990 so-called recession we bounced right through that and didn't see it and that's because of what we said before about our utility customers they are supplying electricity even in a downturn, and many of their projects are long-term projects that have momentum, and so they're not affected by short-term downturns in the economy.

Got it. Terrific. One other quick follow-up on that, then. With the inflation in the continuing, rather than I should say inflation in the energy prices and commodity inflation, if you -- when you look at your backlog right now, I know a lot that is a pass through for you guys and shouldn't impact you, but when you look at your backlog right now and the profitability in that backlog; is this continued commodity and the energy inflation starting to eat up on what could have been your profit opportunity or your profit opportunity continues to improve as the backlog continues to grow and we get the double benefit both the top line growth as well as the margin growth and that's what should really help you, you know, significantly accelerate earnings growth? Can you guys talk about that a little bit?

Sure. Commodity prices really don't affect us because our utility customers and our telecom customers generally furnish the materials. Materials make up less than 10% of our revenues, so it is very small impact from commodities. The pricing in our backlog continues to grow, and that's because of primarily increased demand, so our pricing in backlog continues to be accretive to our existing margins.

Terrific. One last question. I said one. I lied. One more. On the wind energy side, it is not just the transmission benefit you're seeing, you're also getting into the wind farm business. While it is not that big of a portion of your revenue right now, but would it be fair to characterize you guys as one of the top three contractors serving that market so you're in a driving seat to really benefit as that market continues to grow?

No, I wouldn't say we're in the top three. We're probably -- if you count the transmission lines that serve the wind generating facilities, we're probably in the top three to five, but if you take out the transmission lines which we think is more traditional electric revenues, we may be in the top 10.

Okay. Okay. That's great. Once again congratulations, guys.

Thank you.

Our next question is from the line of Jamie Cook. Please state your company name followed by your question.

Good morning. Credit Suisse. Congratulations. I guess my first question, back on -- to ask Sanjay's question a little bit differently, are you seeing any of your customers delay spending because they have to -- because of rising material or labor costs because they have to absorb that?

No. We're really not seeing too much delay because of material costs. Most of the commodity pricing has been built into their budgets going forward. I think that there was probably some delays in 2006, 2007 as they didn't have enough money in their budgets to supply the materials, but I think most of them recognize that commodity prices are up, material prices are up, and they've built that into your budget, so I don't know of any, and, John, you can speak up if you know of any, but I don't know of any that's been delayed specifically because of--.

Or labor.

--price material.

At the present time any of our projects we have ongoing we haven't seen any material delays to us at all.

And then I guess just my second question you guys, I didn't hear any of your prepared remarks. In your last quarter you talked about two projects that you could potentially win. Is one of them the wind farm that you talked about in the Northwest in Oregon that you would get in the second quarter?

No, that was not the projects at all. There was one project, transmission project back on the East Coast, and we have been notified that we were not successful. The other one is in the western part of the United States that we're still waiting to hear on that one.

Do we have an update on timing on that or potential for other more larger projects in 2008?

The timing on the one in the West is what you're asking?

Well, yes, and potential for other projects getting landed in '08 of more material size.

Well, the one on the west we really don't have any information. We're kind of sitting back and waiting on the customer to decide. The other large project we mentioned in the last quarter call was LCRA. That project is if you remember is approaching 200 million, I think $190 million something, and that project is getting under way now. I think we probably have been going at it for a couple of months now, so revenues on that particular job will increase. Other large projects right now we haven't seen, everything that we know of right now is on track. As a matter of fact, there has been a couple that we think might be under -- they're going to expedite them.

And, James, my last question, your gross margin expansion in the first quarter was pretty impressive. Was there anything unusual in that number and as we look at the rest of the year, is that sort of a sustainable gross margin -- gross margin expansion number? Could we see that or could we see it accelerate from the first quarter level when I look at the delta?

I don't know that you'll see the improvement accelerate year-over-year basis, Jamie, but margins should go up during the rest of the year as the weather gets better. I don't think you'll see -- I mean, we're not projecting that you're going to see that much improvement on a year-over-year basis.

Was there anything unusual in the first quarter, though?

Well, it depends on which number you're talking about. Because on an actual basis, on an as-reported basis, Dark Fiber was not in last year, and it was in this year. Even on a pro forma basis you saw about the same increase which would include the Dark Fiber margins from last year. Other than Dark Fiber coming into the actual as-reported numbers there was nothing really unusual.

And still on track to hit your target margins in the fourth quarter? I thought you said that last quarter.

Yes. We said that our core business was in that 9 to 12% operating income range this year. We're on track for that.

All right. Thanks. Congratulations.

Thank you.

Thank you. Our next question is from the line of Jeff Beach. Please stated your company name followed by your question.

Stifel Nicolaus. Congratulations also on a great quarter.

Thank you.

A couple of questions. First, in the last six months you've won a couple of large what I call bundled transmission awards, and you had indicated on the last conference call before this announcement of the lower Colorado that you saw utilities looking at this. Are you negotiating or just in discussions with utilities that are looking at bundling up multiple years of work? And associated with this on the contracts you've already won that are ultimate multiple years, how are you protecting or building in the potential for higher margins? How are you pricing those contracts?

First of all, yes, there are other utilities that are looking at the same time, and of course we are doing our best to convince them that their future success in building those projects is dependent upon Quanta Services and our resources, our abilities, our labor force, our equipment, our proprietary tools and so forth, and how are we protecting those margins? We're building in these contracts openers for various types of cost increase, labor increases, fuel adjustment clauses and those kinds of things and/or they're on a cost plus basis of some nature.

All right. Then can you give us relative size of this Pauley acquisition that you made?

I think their revenues are going to be projected about $60 million this year.

Last thing, can you give us an update as to how you see this large amount of wind projects and I think there is some base load power coming in Texas and whether there might be some awards occurring this year? Can you just discuss those opportunities?

Yes. We are expecting some awards this year related to the west Texas wind farms. There is a number of things going on here in Texas, but if we don't get them awarded fairly soon, they're going to have wind farms with no place to send the energy, so I expect something to happen this year in regard to the awards on those projects.

All right. Thank you.

Thank you. Our next question is from the line of Curtis Woodworth. Please stale your company name followed by your question.

Good morning, JPMorgan.

Good morning.

John, kind of back to the bidding outlook for transmission, last year I think there was kind of like six major projects that went up for bid over call it $100 million I think you won at least four of those. Is your sense that this year that you could see a similar type of activity or is it kind of too early to tell because we're just entering the bidding season?

I think we'll see more than we saw last year. That is consistent with what we've said previously is that we think 2008 we'll see more projects bid than we -- of that magnitude than we did in 2007. I don't know if we can maintain our hit rate or not, but we were fairly successful in 2007, but no reason to think that there won't be more projects in 2008.

And given the success rate in '07 and the backlog you have today in transmission, I assume the visibility is pretty high, and looking at your mix and what you have coming on, do you feel like the transmission part of your utility business could grow close to 15 to 20% this year?

Yes. We expect -- we still have actually a lot of capacity. We can grow our transmission business significantly, so it can grow, depending on the margins and depending on the success rate we have with some of these projects, but certainly we expect it to grow double-digits.

And how do you kind of look at your capacity, how much capacity do you have going forward?

It is a difficult measure because we're typically, because our workforce is an hourly workforce, and they don't get paid unless they're working, we're always at 100% capacity on labor, but we have significant labor resources that we are not paying today that we have available to increase our capacity. So I don't want to say our capacity is unlimited, but certainly we're not anywhere near our capacity in transmission at this point in time.

In terms of obviously the confidence in the core business, margins is very high. If you look at InfraSource and as some of those assets are redeployed into higher margin projects, their mix, right, is pretty high on transmission substation. Would it make sense that when that business becomes more fully utilized that the margin profile theoretically could be greater that than your core mix of business or would that not be true?

I don't know about that. The InfraSource margins were slightly less than our margins when we acquired them, and of course we consider that a synergy in order to not only improve our margins but to get their margins to our level and improve their margins as well, and we've done -- knock on wood we've done well with that so far. We expect to see that continue, but it is going to be harder to measure because we're really one Company now, and we operate as one Company in many areas, and there is a lot of synergistic things going between companies, so it is hard to just measure one thing, but I think that the margins of both companies will be nearly the same if we could measure them.

Ladies and gentlemen, due to us coming up for the end of the hour for this call our last question will be from the line of John Rogers. Please state your company name followed by your question.

D.A. Davidson. Thanks. John, you mentioned I think in your comments that you were seeing more competition or coming into the market and I am just curious is it larger companies chasing it or is it smaller companies trying to move up and go after some of this work?

I was talking about the wind farm business.

Okay.

Okay. The question that I had was about what kind of competition we were seeing in wind farms, and there is a lot of competition in wind farms, but there is a lot of wind farms out there, and so it is conditions that are coming from the commercial building industry into the wind farm business. I think they can make that transition fairly well because in general those guys are project managers. They don't do the work themselves. They sub that work out. So even when they get the project it is likely that we'll be a subcontractor on portions of the work, but we are becoming more of the general contractor on these wind farms building the entire farm ourselves with our inhouse capabilities.

Okay. On the transmission distribution side of the business, not a significant change there, but --?

No.

But a bigger market for still growing, so presumably pricing still being pushed up?

That's right. We're seeing increased spending by our customers in telecom and electric power, and we haven't seen any new additions to that market.

Okay. Great. Thank you.

Thank you. Mr. Colson, please continue with any closing remarks.

Certainly. We certainly appreciate and want to thank you again for your participation in our first quarter conference call. We appreciate your questions and ongoing interest in Quanta. Goodbye for now.

Thank you. Ladies and gentlemen, this concludes the Quanta Services first quarter earnings conference call. The conference will be available for replay after 11:30 Eastern time today through May 14, at midnight Eastern Time. You may access the replay at any time by dialing 303-590-3000 and enter the access code 11113666. That number again 303-590-3000 and input access code 11113666. Thank you very much for your participation. You may now disconnect. Have a pleasant rest of your day.