Feb 21, 2008
Executives
Kip Rupp - DRG&E IR John R. Colson - President and CEO John R.
Wilson - President of Electric Power and Gas Division Kenneth W. Trawick - President of Telecommunications and Cable Television Division James H.
Haddox - CFO
Analysts
Sanjay Shrestha - Lazard Capital Markets Curtis Woodworth - JP Morgan Jamie Cook - Credit Suisse Tahira Afzal - KeyBanc Jeffrey Beach - Stifel Nicolaus Alex Rygiel - FBR
Operator
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 21, 2008. I would now like to turn the conference over to Mr.
Kip Rupp. Please go ahead sir.
Kip Rupp - DRG&E Investor Relations
Great, thank you Patty and welcome everyone to Quanta Services conference call, to review 2007 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'd like to be on the e-mail or fax distribution list to receive future press releases from Quanta, or if you had any additional technical difficulty this morning and did not receive your e-mail or fax, please call our of offices at DRG&E at 713-529-6600. Also if you would like to listen to a replay of today's call, it will 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 21, 2008 and therefore you are advised that any time-sensitive information may no longer be accurate as of the time of any replay of this call.
Also this conference 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, expect benefits from the merger with InfraSource Services and any other statements reflecting Quanta's expectations, intentions, assumptions or beliefs about future events or performance, or that did 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 continue... 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 and Quarterly Reports on Form 10-Q for the quarters ended March 31, 2007, June 30, 2007 and September 30, 2007, and if other documents filed with the Securities and Exchange Commission, which maybe 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 do not undertake any obligation to update any forward-looking statements to reflect events or circumstances after this call.
With that, I would to now turn the call over to Mr. John Colson, Quanta's Chairman and CEO.
John?
John R. Colson - President and Chief Executive Officer
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 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 financial and operational performance in the final months of 2007.
This year's results include four months of revenue contribution 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 the 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 with $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 is 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 revenue break-up, 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 also faced with increasing demand for services and system [ph] reliability. This combine 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. Recently we have had investor enquires about a downturn in 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, our downward trends in other areas of constructions.
Most of our customers remain financially sound and focused on expanding the existing and building new infrastructure to meet increasing demand. People need power and utilities main 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.
And our view, Quanta remains the partner of choice for utilities who need a broad infrastructure expertise, incentive equipment and workforce resources. Also as new technologies emerge for communications in 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.
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 it will require between the 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 back-ups facilities if used as a primary source of generation. We remain focused on this area of the industry and this will be a strategic initiative of 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 at our electric, power and natural gas operations.
John R. Wilson - President of Electric Power and Gas Division
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 that future presents robust opportunities for Quanta.
These opportunities continue to contribute to our growing backlog. 12 month backlog for the electric, power and natural gas operation at December 31, 07 was approximately 1.84 billion.
Total backlog for the electric, power and gas operation at December 31, 07 was approximately 3.75 billion. These two statistics represent 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 our customers to design solutions to meet their evolving and varied infrastructure upgrade requirements.
We've made significant progress on several projects that we discussed on last quarter's earning call and many which are focused on upgrading the transmission grid. Earlier this month, the Arrowhead Western 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 our contract with American Transmission Company, ATC our MJ 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 the 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 pre-planning stages of the $750 million with NU and in the fourth quarter this year, we will be initiating smaller transmission make-ready projects to prepare and use transmission growth for this construction.
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 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 lines 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 its power structure.
We also expect decisions on two large transmission projects one in the East the other in 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 Palo Verde to Devers line encompassing 250-miles 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 back up 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 which is the consideration of rerouting the line which will entail new permitting, which could take as long as one year. The other prompt major projects mentioned in the last conference call are as far as we know, still one scheduled to bid over the next several quarters.
Although fourth quarter gas revenues decreased due to exiting of low margin business, we have recently observed an increase in revenues related to our gas operations. This is attributable to the diversification of 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 after 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 required 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, will put into action in the fourth quarter.
As previously mentioned, FERC approved requests for transmission and 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.
The mandatory reliability standards in place a minimum [ph] workforce shortage and upward pricing pressures, utilities are taking action now to ensure access to expert reliable resources to make the power delivery strategies a reality. This is evident in the transmission project developments in the fourth quarter and our recent contract awards.
Our perspective looking forward is a very optimistic. We expect to continue to roll our revenues within our existing core expertise while maximizing margins.
In tandem, we will evaluate and aggressively pursue opportunities that further diversify or 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'll turn the call over to Ken Trawick, who will review the performance of Quanta's telecom and cable operations. Ken?
Kenneth W. Trawick - President of Telecommunications and Cable Television Division
Thank you, John and good morning everyone. I am 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 IFS revenues at the end of the fourth quarter of 06 or the fourth quarter of 07 had approximately 66% internal 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-Premises initiatives for service providers such as Verizon and AT&T, combined with the dramatic increase in revenues from our Wireless Division. We would have to go back to the fourth quarter of 2007, defined as a stronger quarter from a revenue perspective and the fourth quarter of 2003 defined high and 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 our legacy operating units which have been part of our organization for years. The aggressiveness with which service providers are expanding their networks in reflected in our operations.
We continue to work on installing Verizon's fiber networks in several states across the country. Verizon has reported that it closed 2007 with the addition of 226,000 new wireless TV customers, bringing the total to more than a million.
Verizon maintains its expectation to reach 3 million wireless 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 appliance [ph] across the United States included 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, were 231,000 which was up from a 126,000 three months earlier.
AT&T announced the major expansion of its AT&T U-verse services that included the company's Southeast region with deployment expected to range approximately 30 million living units across 20 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 build out across the U.S.
We are also active participants in request 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 that future holds a great deal of growth opportunity as carriers return to infrastructure and bandwidth to support deployment of new technologies and services, despite of some weak period during which carriers accessed market opportunities and evaluated emerging technologies. So these issues apparently resolve their increasing spending quickly.
As we expected the fourth quarter saw a return to a historically 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 today.
This project embarks set [ph] acquisitions, architectural and engineering services, construction services, the cable installation and integration. Our capability to perform these large...
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 Darker a unique [ph] 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 healthcare markets, for secured high speed networks in fourth quarter.
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 2007 new contract sales were about $147 million. These amounts represent additional revenues to be recognized over the contract period, beginning from the 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 the 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 reserve supports our positive outlook for the future. We believe 2008 is the year of opportunity during which revenue growth and margin enhancement and strengthening of our market position remain our top goals.
We are excited and optimistic about what the future holds for our telecom operations and our year-over-year increasing backlog supports that belief. 12 months 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 in 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 our fiber operations from this review.
We believe that it is possible that a prolonged recession could have a negative impact on our customers spending patterns. However, recent pronouncements by the major telecom services providers in our industry, combined with our recent results in our near-term forecast, and continued high demand form bundle services and high bandwidth application both data and video, wireless and fiber-based support our positive outlook and opportunities to grow revenue and expand margins in 2008.
Now I will turn the call over to James Haddox for a review of our financial results. James.
James H. Haddox - Chief Financial Officer
Thanks Ken and Good morning everyone. Before I begin my presentation, I want to apologize for the values of numbers I am about to present.
We have made an attempt to make our numbers as transparent as possible, but with the 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 $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 InfraSoruce revenue, 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 discussions, I am referring to data prepared on a combined company basis, taking into account the acquisition of InfraSoruce as has occurred on January 1, 2006 or January 1, 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 InfraSoruce. 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've 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 may 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 a times, we maybe 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 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 were decreased by 8% or approximately... I mean $8 million, 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 with a resulting electric power growth of about 8%.
Telecom and cable work increased to 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, 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, SG&A expenses increased from 48.5 million in 4Q 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 reporting 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 profit.
EBITA for all of 2007 was 188.2 million on an as-reported or 7.1% of revenues compared to $131.2 million or 6.2% for 2006. The calculation of EBITDA is set forth in the Financial News section of our website at www.quantaservices.com.
We believe that EBITDA will become a more important metric in the future, as amortization expenses associated with the InfraSource acquisition is expected to become more a 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 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. Net income from contributing, I'm sorry, 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. The reconciliation of GAAP to cash EPS is provided in the tables attached to our press release issue 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 of 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 of free cash flow for all of 2007.
This strong free cash flow is 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.
Calculation of this non-GAAP measure can be found in the Financial News section of our website at www.quantaservices.com. We have also posted to our website a calculation for adjusted EBITDA that adds back merger cost 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 to billing, less billings in excess of cost, divided by average revenues per day during quarter, was 76 days at December 31st of '07 versus a pro forma 83 days at September 30, of 2007 and 80 days at December 31, 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 the 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 services agreements.
Backlog for project work includes remaining revenues to be earned under lump sum projects and our estimated of the remaining revenues to be earned under time and equipment or unit price contracts. Backlog from master service agreements includes our estimate of future billings based placed on our knowledge of customers' spending patterns under time and equipment in 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, 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.
This total backlog was not calculated at that day. 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%. The 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 have $407 million in cash and $306 million on available borrowing capacity under our $475 million credit facility. We had 106...
about $169 million on 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 estimated revenues for the 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 are between 810 and $840 million, it's from $0.10 to $0.11 per diluted share on a GAAP basis.
Our GAAP EPS forecast includes as 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. The additional guidance, we are currently projecting our tax rate for the first quarter to be approximately 41%.
We expect our diluted share count to be about 201 million shares during the first quarter, which includes shares underlying our convertible subordinated note. The net income add-back associated with the converted shares was approximately $3.2 million per quarter.
For additional guidance... additional events, we also expect to earn less interest income in '08 on our cash balance, due to the recent rate cuts that we've 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 is primarily related to InfraSource operations, particularly their fiber leasing operations. 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 and '09. In summary, we accomplished several initiatives during 2007 that strengthened the quarter.
We enhanced our capabilities and geographic coverage through the acquisition of InfraSource and began to realize synergies. We improved our EBITDA 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 link the maturities, lower borrowing cost and increased borrowing capacity.
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 the questions.
Question And Answer
Operator
Thank you. [Operator Instructions].
And our first question comes from the line Sanjay Shrestha from Lazard Capital Markets. Please go ahead.
Sanjay Shrestha - Lazard Capital Markets
Great. Good morning, guys.
First of all, congratulations on a great quarter here, and terrific backlog. So, first, couple of quick question, you gave out a lot of details on the number, we are going to go back to transcript on that.
But gross margin improved some 200 basis point on a pro forma basis. So, the question is, I know you guys don't disclose the gross margin or the margin profile in your backlog, but is it fair to say that its not the 14% jump in the back...
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?
James H. Haddox - Chief Financial Officer
Yeah. 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 we, as old projects fall off and new projects come into backlog.
Sanjay Shrestha - Lazard Capital Markets
So... great.
So, that's then continues despite the macro outlook and things of that nature, that's great. Another point here, you guys talked about two large projects, your decision in the near future.
Can you talk about the... 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 that precise, at least a sense of north of this size below this, can you just put some parameters around it?
John R. Wilson - President of Electric Power and Gas Division
Sanjay, this is John Wilson. Are you talking about the two projects that we have bid?
Sanjay Shrestha - Lazard Capital Markets
Correct.
John R. Wilson - President of Electric Power and Gas Division
Oh I would say one... both are more...
approaching $200 million of fees 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 that is out there.
Sanjay Shrestha - Lazard Capital Markets
Completely understand. And also one last question, then guys, so obviously the margins are getting better, backlogs growing and you guys are also intentionally getting out of the lower margin natural gas work, which is a 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, the telecom side of the market.
Just want to clarify that, correct?
Unidentified Analyst
That's absolutely right. And what we're doing to clarify a little bit on the gas business as John indicated is, we're transforming that gas business from a distribution gas business as much as possible into petroleum gas business, where we're building lines for gathering fields and building gas transmission lines and meter insertions and so forth.
Sanjay Shrestha - Lazard Capital Markets
So then they are becoming a better margin business?
Unidentified Analyst
A better margin, faster growing business than this gas distribution business because 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.
Sanjay Shrestha - Lazard Capital Markets
Perfect, once again congratulations guys.
Unidentified Analyst
Thank you.
Operator
Thank you. And our next question comes from the line of Curtis Woodworth from JP Morgan.
Please go ahead.
Curtis Woodworth - JP Morgan
Yeah. Hi, good morning.
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 was 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 just wondering what... what is causing the sequential delta there and is it more of the comp issue or the transmission spending?
Unidentified Analyst
There is a number of things there that are involved in the fourth quarter and are fairly complex. First of all, there is 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 overtime and it was performed...
and this is an important fact, it was performed... storm work was performed over Christmas, a 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 because they 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.
Curtis Woodworth - JP Morgan
Right, okay. And then in terms of the first quarter guidance of 13% organic, is there a...
given that the visibility on the backlog and kind of what you are seeing in terms of spending patterns in utilities and what their operating budgets have looked like for this year, what they are telling you, is there any reason why you don't think you could continue to get a double-digit organic growth this year?
Unidentified Analyst
Now we anticipate double-digit organic growth this year with increasing margins.
Curtis Woodworth - JP Morgan
And then in terms of transmission part of the business, it feels like from the contract you have announced and potential near term activity, that the bulk of this work is really going to start in 2009, in 2010. I am 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, post '09 and help us think about kind of the magnitude of benefit going forward.
Unidentified Analyst
Yeah I don't think we have those statistics available for this call, we are glad to do some research on that, but the amount of 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 is a number of projects we are 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 of the top of my head how many million of dollars that might account for.
Curtis Woodworth - JP Morgan
Okay. But it's fair to characterize as 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 wake up year, then you think 2010 will expand upon that...
because of total work?
Unidentified Analyst
We are trying to say, it's very significant I believe for 2008, but more significant even in 2009 and beyond. We've several projects that we are currently working, others that we are starting for multiple utilities of the caliber what always referred to is mega project.
So, '08 is going to be fairly strong in transmission, '09 will be even stronger and then accelerating from there.
Curtis Woodworth - JP Morgan
Great. Thank you very much.
Operator
Thank you. And our next question comes from the line of Jamie Cook from Credit Suisse.
Please go ahead.
Jamie Cook - Credit Suisse
Hi. Good morning and 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 am just trying to figure out...
get a little more color on that, I guess?
John R. Wilson - President of Electric Power and Gas Division
Sure, Jamie. I think I've given you about much colors 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, will be covered in that multiple year contract and at this point in time, that's about all I can say, just stay tuned.
Jamie Cook - Credit Suisse
Would it be fair to say not... in addition...
I mean 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 working with and do you feel like there's more to come on that front and that size of the potential awards could be larger than the MoU with Northeast Utility?
Unidentified Analyst
You know $750 million contracts is pretty significant number, I think it's the largest in history that I am aware of. Their mega projects maybe not quite as large as that, but still very, very significant top projects, Jamie.
Jamie Cook - Credit Suisse
Okay.
Unidentified Analyst
That's not adjusted, 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.
Jamie Cook - Credit Suisse
Okay, but it is fair to say you are in discussions with other utilities that would be similar to the contract you signed with Northeast?
Unidentified Analyst
That's right. There are big projects out there, but none that are eminent of that size.
Jamie Cook - Credit Suisse
Okay.
Unidentified Analyst
Anything over $100 million is about all we talk about. Those are very large projects for transmission.
There are lot of projects smaller than the $100 million that we don't ever talk about or mention.
Jamie Cook - Credit Suisse
And then you also mentioned that one of the projects that you are... I think with Norwalk, I think you said to the effect that you are finishing that early, would that imply that because you finished early, there could be some sort of performance award related to that and we could see that in the end of '08?
Unidentified Analyst
No, I think he was just indicating that there was a very large project and that timely completion is very important for our customers. And in pointing out that we are completing ahead of time, which is very important to our customers.
Jamie Cook - Credit Suisse
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 that nice to 12% operating margin. 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 of cost synergies with InfraSource and the revenue synergies and just the strength of the outlook there, when do we get there and is there reason to believe that we could do better than the 9 to 12% over the long term?
James H. Haddox - Chief Financial Officer
Jamie, we haven't haven't really changed our guidance on that. I mean we still think that we can get into the 9 to 12%, especially if you exclude amortization, I mean on a EBITA basis.
We still maintain that the 9 to 12% margin is a reasonably 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.
Jamie Cook - Credit Suisse
And then I guess just lastly, John, can you just talk to I think there, can you talk to the projects that you working on right now or potential projects and backlog, is there anything your are concerned as you sort of had time to look through what InfraSource has been working on the stuff that they have in backlog, do you feel comfortable that those projects are tracking according to plan, and there would be no potential cost overruns?
Unidentified Analyst
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% of op income, I think it's safe to say that we'll get the electric power and telecommunication, our core businesses into that range probably in 2008.
Jamie Cook - Credit Suisse
The end of 2008?
Unidentified Analyst
C&I business are more difficult to get into that range and they will drag our overall margins down to certain degree. We should have our electric power and telecom into that 9 to 12% operating income in 2008.
Jamie Cook - Credit Suisse
Do you care to say high or low end, in what quarter? All right, congratulations guys.
Unidentified Analyst
Thank you.
Operator
Thank you. And our next question comes from the line of Tahira Afzal from KeyBanc.
Please go ahead.
Tahira Afzal - KeyBanc
Good morning gentlemen, nice quarter.
Unidentified Analyst
Thank you.
Tahira Afzal - KeyBanc
I know you hate to talk about storm revenues, but could you give us a bit little color on your guidance and why you've gone with $12 million. You commented earlier that West Coast last year was really good for you.
I believe that storm activity seem really strong on the West Coast, so would love to get a bit more color on that.
Unidentified Analyst
Yeah, the reason we put 12 in is because that's 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. This 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...
James H. Haddox - Chief Financial Officer
The first quarter of 2007 also had some widespread ice storms across the Midwest and we haven't experienced that yet this year, and end point outages were being created, so it's difficult to predict. Same kind of quarter we had in the first quarter of last year, although, it is possible if there's a major ice storm somewhere.
Tahira Afzal - KeyBanc
Okay, fair enough. And then if I look at your first quarter implied margins, if I take your cash EPS of $0.16 and compare it to the first quarter you had last year, kind of imply around as you said 90 to 100 basis points improvement in operating margin.
Would that include some of the $20 million in annual synergies for '08 that you have... that you've been projecting?
Unidentified Analyst
Yes. I mean we have started realizing synergies and we will continue to realize those synergies in '08 as far as the 20 million is concerned.
Tahira Afzal - KeyBanc
Yes. As we go forward progressively, do we expect that level of synergies to increase, if you compare it on a year-on-year basis?
Unidentified Analyst
Yes, we expect synergies to continue to increase over the next three years, is what our goal is.
Tahira Afzal - KeyBanc
Okay great. And I assume you can't really comment any thing beyond the 20 million so far?
Unidentified Analyst
I am sorry say that again.
Unidentified Analyst
Well, I mean there is a... there is something to discuss on that, that we feel as a synergy, but it's an example of why we can't really...
we can't really nail it down because we may have got in the Northeast Utilities job without acquiring InfraSource.
Tahira Afzal - KeyBanc
Right.
Unidentified Analyst
On 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?
May be, 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 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 applying to it.
Tahira Afzal - KeyBanc
I guess that depends on the margins on that business, right?
Unidentified Analyst
Right. And that's the example of...
I mean that's an example of why I saw it difficult to actually calculate it or project it from the timings standpoint, but we feel that, that's a big synergy that's a been earned as a result of the InfraSource acquisition and which would way overshadow the 18 to $20 million that we have been talking about, which is really cost savings for back office consolidations.
Tahira Afzal - KeyBanc
Fair enough. And I mean if you look at that...
on that note, and you look back, you've won now I guess three to four large high transmission voltage projects over the last year. Where would you put your market share versus in the high voltage space in terms of these large projects now?
Unidentified Analyst
Well, we would have to define what we are talking about as large projects. Certainly, our market share in projects over $100 million is fairly high, but on an overall transmission, is probably still in that 10%, maybe at 15% of the total transmission work across the country.
Tahira Afzal - KeyBanc
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?
Unidentified Analyst
Well, 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.
Tahira Afzal - KeyBanc
Okay, fair enough. And last question, in terms of your net awards which one can kind of back calculate into using your backlog number.
It seems that you had net awards outside of the 70... $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?
Unidentified Analyst
Would you repeat that number again?
Tahira Afzal - KeyBanc
Sure. It's around $1 billion, so just taking your backlog...
total backlog number and...?
Unidentified Analyst
Some of the backlog increased 880 million.
Tahira Afzal - KeyBanc
That's correct and just using your revenue number versus your backlog as of last quarter, total backlog gives, you around 1.76 billion. And if you take out the $750 million awards, kind of looks like your net awards for the quarter were around $1 billion?
Unidentified Analyst
You are talking about... I see what you mean, as far as burn rate.
Tahira Afzal - KeyBanc
Right, right. I mean, would you say that...
Unidentified Analyst
That revenues aren't there in the quarter from that backlog, that's what you mean.
Tahira Afzal - KeyBanc
That's correct. I mean is that what we should expect outside of your large awards, or take this $750 million award out?
Unidentified Analyst
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 am not going to project how much backlog is going to grow each quarter, but we expect to continue to grow even as there is some lumpiness in these big projects. Obviously, you are not going to pick up a $750 project every quarter.
Operator
Thank you. And our next question comes from line Jeff Beach from Stifel Nicolaus.
Please go ahead.
Jeffrey Beach - Stifel Nicolaus
Yes, good morning, John and James.
Unidentified Analyst
Good morning.
Unidentified Analyst
Good morning.
Jeffrey Beach - Stifel Nicolaus
And again congratulations on a good quarter, a good year. A couple of general questions.
Can you... there is a lot of wind projects that are in planning, moving ahead here.
Can you describe to date here within the wind projects you have been doing or looking ahead at in '08, kind of the range of 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 there... are you doing more services, more content in a wind project than a standard transmission project?
Unidentified Analyst
Well, of course, for a wind project, we do the traditional T&D contractor portion, the transmission lines, the substations, switch yards, even some of the gathering lines for the individual windmills. But what we're trying to do in what I was talking about there is expanding our role in those generating fields to do more of the work.
We're very capable of doing the entire project, that's something that we haven't done because those margins and 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 build and we intend to get more of the individual budget for a wind farm and perhaps even build some entirely on our own.
Jeffrey Beach - Stifel Nicolaus
Okay. Good.
Just moving over and roughly the same thing on the outside of the renewable projects on the transmission projects you're 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 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?
Unidentified Analyst
Yes, I think that's an area where we talked about the... 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 that lot of revenue synergies from our operating companies working with InfraSource's Group that designs and builds substations and trying to gain 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 the 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.
Jeffrey Beach - Stifel Nicolaus
The last question, just a ballpark guess here. On the transmission side, what percentage of the new projects, I guess I'll call them, new construction, is there electrified work involved that gives you an advantage?
Unidentified Analyst
Jeff, a lot of your new builds, there is not a tremendous amount of energized work. But what we are seeing is a lot of the utility companies because of the constraint nature of our overall transmission system, so, many of the lines of the present time need to have maintenance and work performed on them and the utilities do not have the luxury anymore of taking those lines out of service.
Just to give you one example, one of our operating units from the InfraSource Group recently just went... underwent our bare hand training.
We trained on a utility system that had never utilized the energized work on the transmission system and at the completion of the training process, they are awarded on a purchase order to continue that crew on that system for the rest of the year, working energized maintenance work. So, I feel there is a big pop for energized work.
Then once you are there, on that system, doing that specialized high technical skilled level type of work, they immediately then just start funneling more and more projects to you on an every day basis, and that's how started your so called mega projects that come up from time to time. So we are pretty excited about the energized fees pushing that into our InfraSource companies and delivering their service to the companies that they were working with, that's just a huge amount of revenue for us.
And on the other side of the coin, it's really been a big morale booster for the employees, because they feel like they are 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 are getting big bang from our customers because of that and from our employee base.
Jeffrey Beach - Stifel Nicolaus
All right, thank you.
Unidentified Analyst
I think we're running... have ran...
way over, but we will take one more question.
Operator
Thank you. And our next question comes on the line of Alex Rygiel from FBR.
Please go ahead.
Alex Rygiel - FBR
Thank you, gentleman. 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 its light and I disagree with that.
But I wanted to, fore intend some things by you. Clearly, your gain of growth guidance in the first quarter is very strong at 13%.
if you were to look at the embedded margins, it you would imply that your... you've got even the 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?
Unidentified Analyst
Alex, I am 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 and 4Q?
Alex Rygiel - FBR
All right. The margins embedded in your guidance, would...
are better than you would normally forecast in the seasonal period in the first quarter?
Unidentified Analyst
Yeah, I think that's an indication that margins are continuing to improve.
Unidentified Analyst
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.
Alex Rygiel - FBR
And I guess the math... did that math behind my question is, if you were to look at your sequential 4Q 05 to 1Q '06, when storm revenues declined from 70 million to 20 million, 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 our first quarter of '08, it would not imply that your margins are down that much sequentially 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.
Unidentified Analyst
Yes, that's right. You're going a long way back when you start talking about 05 and '06, so I can't answer that the reason for that, but yes, you're right.
Alex Rygiel - FBR
Fair enough. The mega project that you talked about a little bit, sounds like it's probably a couple of hundred million dollars, is that a new customer or an existing customer?
Unidentified Analyst
Well we have performed work for that customer in the past, but not any work within probably the last 12 months.
Alex Rygiel - FBR
Okay. And it relates to the gas business, can you quantify the gas distribution business as a percentage of the total gas business?
Unidentified Analyst
Can you do that James?
Unidentified Analyst
No, not off the top of my head.
Unidentified Analyst
Not without doing some work, we could...
Alex Rygiel - FBR
Is it about 50-50 is it about one-third, is it about two-thirds?
Unidentified Analyst
Probably close to 50-50, but we're going to try to make that higher petroleum-related or gas field related work than gas distribution, but probably running now 50-50. That's a guess, I mean.
Unidentified Analyst
And we're yet to do a little bit more digging in detail on that, but you're probably not very far off.
Alex Rygiel - FBR
That's outstanding. Gentlemen, congratulations on a nice quarter.
Unidentified Analyst
Thanks very much.
Operator
Thank you. And we have no further question at this time, please continue if any closing remarks.
John R. Colson - President and Chief Executive Officer
Okay, thank you. I want to thank you again for your participation in our fourth quarter and year-end conference call.
We appreciate your questions and ongoing interest in Quanta. Thank you, again.
Operator
Ladies and gentlemen, that does conclude our conference for the day. Thank you for your participation.
You may now disconnect.