CommScope Holding Company Inc (COMM) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the first quarter 2003 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, press the one followed by the four on your telephone. As a reminder this conference is being recorded Tuesday, April 29, 2003. I would now like to turn the conference over to Phil Armstrong, VP of Investor Relations of CommScope.

Good afternoon and thank you for joining us on this call. Frank Drendel, Chairman and Chief Executive Officer, Brian Garrett, CommScope's President and Chief Operating Officer, and Jearld Leonhardt, CommScope's Chief Financial Officer join me on the call.

During this call, we may make forward-looking statements regarding CommScope and OFS BrightWave's market and financial position, plans and outlook that are based on information currently available to management. Management's beliefs and a number of functions concerning future events. Forward-looking statements are not a guarantee of performance and are subject to a number of uncertainties and other factors, which can cause the actual results to differ materially from those currently expected. For a more detailed description of factors that can cause such a difference, please see the press release we issued today in CommScope's filings with the Securities and Exchange Commission. In providing forward-looking statements, the company does not intend and does not undertake any duty or obligation to update these statements as a result of new information in future events or otherwise.

After Jearld Leonhardt reviews first quarter results, we'll open it up for questions. Jearld.

Thank you, Phil. Today, CommScope reported sales of $129 million and other results for the first quarter of 2003. While sales and gross margin were consistent with previous guidance, we reported a net loss of approximately $3.1 million or 5/10 per share. This net loss included after tax equity and losses of OFS Brightwave of 6 cents per share. In comparison to the first quarter of 2002, the company incurred a net loss of $1.6 million or 3 cents a share, which included after-tax equity and losses of OFS BrightWave up 13 cents per share.

CommScope's sales for the first quarter were $129 million compared to $160 million in the year-ago quarter, and $136 million in the preceding quarter. The 19% year-over-year sales decline was mainly due to lower broadband video sales. Sales decreased sequentially primarily due to lower sales to Comcast Corporation, which completed his merger with AT&T broadband in November of last year. International sales for the quarter were $25 million, essentially stable year over year and sequentially.

Orders booked in the first quarter of 2003 were $135 million compared to $133 million in the proceeding quarter and $175 million in the first quarter of 2002. First quarter book-to-bill ratio was 1.04 times and was positive for all major product categories.

Worldwide, broadband video sales decreased 24% year-over-year and 14% sequentially to $101 million for the first quarter. Sales declined year-over-year, principally due to lower sales to Adelphia and Charter, somewhat offset by higher sales of Comcast. We expected a seasonal downturn in broadband video sales and the traditional slower first quarter; however, sales of Comcast also decreased sequentially, partly due to the impact of higher fourth quarter 2002 inventory levels, which we believe were built in anticipation of merger. Sales from Comcast, which merged with AT&T broadband in November of 2002 represented approximately 23% of total company sales for the quarter.

Worldwide broadband video orders for the quarter were $106 million. International sales were sufficiently stable with the preceding quarter and last year's first quarter was $25 million. However, international sales remain at historic eight-year lows. While we're confident of long-term global opportunities, our near-term visibility remains limited. International orders for first quarter were $26 million.

Pricing for coaxial cable remained relatively stable during the quarter. In contrast, prices for fiber-optic cable experienced significant price structures. Yet despite the pricing pressure, CommScope achieved the substantial fiber-optic cable sales growth in the quarter. Worldwide, fiber-optic cable sales, including both broadband and local area network products rose more than 20% from the first quarter of 2002 and over 5% sequentially. Worldwide fiber-optic cable volume increased more than 25% year over year and more than 10% sequentially. Fiber-optic cable sales primarily for broadband applications continue to represent more than 10% of total company sales.

Since our investment in OFS BrightWave in November 2001, our strategy has been to come the cable industry's fiber supply. We believe that we have made significant progress toward this goal as a result of Comcast's strong service model and value-added products like our Lightscope ZWP and laser core fiber-optic cables, which are based upon technologically advanced optical fibers from OFS.

It continues to be a difficult market for fiber-optic cable products, however, we believe turbulent markets often create opportunities for those companies willing to take a calculated risk that can help their business for the long-term. While we recognize the fiber-optic cable margins remain pressured in the current environment, we believe that enhancing our overall market position will provide important long-term benefits.

We are pleased with our strong local area network performance. LAN sales were $23 million, up 15% from last year's first quarter and up 63% sequentially. LAN sales benefited from strengthening project business and increasing fiber-optic cable and apparatus sales. LAN orders for the quarter were slightly over $23 million.

Wireless other telecom sales rose sequentially for the second straight quarter to $5 million. Orders also increased $6 million for the quarter. While we're not satisfied with the absolute level of sales, we believe that we have made progress communicating the sale reach value proposition to customers. We're committed to building this business. We continue to bring innovative products to market, and we remain optimistic about long-term opportunities with the wireless group.

Total company gross margin for the first quarter was 18.6% compared to 19.4% in the preceding quarter. And 22.2% in the first quarter of 2002. The decreases in gross profit and margin were primarily due to lower sales volume and competitive pricing pressure for certain products, including fiber-optic cable and LAN products.

Sales in general and administrative expense of $20 million in the quarter, down 8% sequentially and down 5% year-over-year. R&D expense was approximately $1 1/2 million, or roughly 1% of sales in the quarter.

In the midst of a difficult market for optical fiber products, our equity method investee, OFS BrightWave made progress in both revenue expansions and cost reduction. OFS BrightWave's first quarter revenues were $28 million, up 5% year-over-year and up 4% sequentially. However, OFS reported a negative gross profit of $21 million and a net loss of $31 million in the quarter. CommScope reported after-tax charges of $3.8 million or 6 cents per share in the quarter for equity and losses of OFS BrightWave related to the company's minority investment in this venture.

We believe OFS BrightWave has taken significant steps to reduce its cost structure; however, the market for fiber-optic cable remains severely depressed and we expect on-going pricing pressure and weak global demand for fiber-optic cable products at least through 2003. As a result, we believe OFS BrightWave will incur losses through 2003 and will continue to evaluate its business for cost-reduction opportunities.

Turning to cash flow and balance-sheet issues for the quarter, net accounts receivable were $79 million for the quarter. Inventories were $39 million, and depreciation and amortization was $8.6 million. Overall, net cash provided by operating activities was $4 million for first quarter, down from the fourth quarter levels. CommScope's first quarter is historically the weakest quarter from the cash-flow perspective while our fourth quarter is typically the strongest.

We are tightly managing capital expenditures. For the quarter, Cap Ex was dollar about $2 million, resulting in key -- or free cash flow of about $2 million. CommScope ended the quarter with $122 million in cash and cash equivalent. Total long-debt outstanding at March 31 was approximately $183 million or about $26% of our book capital structure. As an aside, Standard and Poors issued a press release late this afternoon that announced the lowering of CommScope's corporate credit rating from Double B Plus to Double B, and subordinated debt rating from Double B Minus to Single B Plus. Our debt had been in -- on S&P credit watch since March 13, 2003. S&Ps new outlook for CommScope is fatal.

Despite the difficult market conditions, we continue to believe that CommScope is strategically positioned for long-term business opportunities and believe that our balance sheet provides solid credit protection for [creditors].

Regarding outlook, the volatile global business conditions make it tough for us to forecast with historic levels of confidence. As we see things now, assuming seasonal increases, we expect second quarter 2003 sales to rise to the $130 to $145 million range.

However, like others in the industry, we are experiencing some cost pressures, primarily related to costs of polyethylene and other plastics. Depending on sales volumes, we expect gross margins to be in the 17.5 to the 18.5% range for the second quarter.

We also expect to generate free cash flow during 2003. Defined as cash from operations less capital spending. In addition, we expect capital spending to remain well-below depreciation and amortization for the next few years.

Thank you and now our operator or I'll ask our operator to go to the question-and-answer mode. Amy?

Thank you. Ladies and gentlemen, if you would like to register for a question, press the one followed by the 4 on the telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, press the one followed by the three. If you're using a speaker phone phone, please lift your handset before entering your request. One moment please for your first question. Your first question comes from the line of Daryl Armstrong with Salomon Smith Barney. Please go ahead. Thanks, this is Matt for Daryl.

I was wondering if you could provide additional color on the pricing environment, since Comcast has been dominating the activity in the industry, have they been using their clout to further drive down pricing recently?

Well, we'll start with Comcast. First of all, the pricing activity, we have a long-term contract with Comcast. We wouldn't be able to change any of the pricing with them at this current stage if we wanted to. We have had increases on our material cost from primarily the polyethylene suppliers who use the opportunity in the Gulf War to kind of stiff everybody with a price increase and now oil's actually below where it was before the war started, so we're trying to work off some of these material price increases. No, they have not used any of their clout on pushing back or using that to change any of the pricing that exists with our products. Neither coaxial or fiber.

Great, thanks.

Yes, sir.

Your next question will come from the line of Daniel Ernst with Rodman & Renshaw. Your line is now open. Please proceed with your question.

Yes, good afternoon. A couple of questions, um, you know, first on the balance sheet. You said, you know, typically the first quarter is the weakest in both sales and from a cash management perspective, but it does seem like you turn back in the other direction and really positive trending on working capital management and DSOs shot up a lot, um, day sales inventory also pushed up, you know, you had receivables, you know, pick up a lot as well as payables go up. So is it kind of a speed, to, you know, something that we will see in come back down to follow the trend you set over the last, you know, six or eight quarters of bringing all of those metrics tighter.

I understand where you're going with that, Dan. First of all, we monitor that closely as you would expect. At the end of last year, we were down to very low, on a historical basis, something on the order of 42 days to 442 days, DSOs. Part of that as you can imagine was AT&T cleaning up everything with all of their vendors in participation and getting ready for the merger with Comcast. So, you had this changeover, this handover between Comcast and AT&T and then you had this general restart of a receivables buildup in general business trends between this and doing business with Comcast. So even at this level, were it something of mid-range in the historical DSOs between 45 and 75 or in the 55, 56 days outstanding, so this is more normal than you would have seen at the end of last year in the receivable space.

Um, the good news is that we generated all of that receivable build with internal cash flow and we were still able to add to additional cash position. So this, this is not out of line. We're not overly concerned about it.

In the inventory position, that's just building inventory from what we hope is the spring rush. Just about a couple million dollar build there.

Do you expect on the metric side, those things to trend back down?

We do. They generally cycle through the year. If you look at us on a historical basis.

Sure. Sure. On the forecast side, could you walk us through some of the levers in that forecast, I mean, it's pretty clear we know what is going to happen with Comcast. We'll ramp-up and upgrade. At some point we expect Adelphia to restabilize and Charter to come through as well, but the other parts of business that really jumped this quarter, the LAN business and project management, is it a short-term, one-time blip or can you regain market share in there and wireless and other telecom and also of a short-term blip, will it term back down or do you have visibility in that area as well?

I'll take the cable TV piece for a moment. And Brian will tell you the success they have had in the LAN area, which is excellent. We still don't have complete resolution as to when Adelphia will be back at anything like they were a year ago.

Uh-huh.

A years ago, Adelphia was running at a pace of 15 to 18 million. They're nowhere anywhere near that. Not even 1/10 of that. That process continues. It's in the courts and it's just not predictable. I would not expect it to be this quarter, and I doubt that it's next quarter when we will see that.

Charter seems to be gaining traction, seems to be getting itself where we should expect some potential uptake in Charter and the latter part of this quarter, first part of next quarter, and the rest is pretty much business as usual.

As far as international, we still have not seen anything that is concrete in Germany, and I still don't expect anything out of Germany until the earliest end of this year, possibly the first quarter of next year. That kind of -- the rest of the operators are business as usual. They're not any surprises negative or positive to what they told us they're doing. They're in there doing their thing and, um, I'll let Brian discuss the wireless and LAN business.

First of all, you know, all of our business has grown sequentially, Q2 over Q1. That is just the nature of the construction activity in all of these markets, um, in LAN, we would expect the same, sequential growth. I will say that we have been very pleased with a level of project wins that we have been able to achieve in the quarter and our expectations are to continue those levels of project wins. In the wireless market, the industry should hedge construction activity, should expand in the second quarter and we are taking increasing positions with some of our key accounts. So, um, again, I think we have a optimistic outlook for the second quarter in, particularly in wireless.

Does your wireless, used to conjure a little what have we heard from AT&T wireless and PCS and their Cap Ex plans for the year.

Yeah, we have heard a number of, um, comments from operators, lowering their expectations for construction during the year. I don't think that will substantially influence the distribution of construction quarter-over-quarter.

Got it. Thank you, sirs.

Yes, sir.

Your next question will come from the line of Larry Harris with H.C. Wainwright. Your line is now open. Please proceed with your question.

Yes, thank you. A couple of questions. One in terms of at least relative to my model, most of the income statement numbers came in fairly close. I get a sense, and I want to confirm it that while, you know, things are not robust that your ability to forecast the business or revenue visibility, say compared to where we were a quarter or two ago, is improved. Is that a correct impression?

Larry, I would say that if anything, it's probably a little more foggy now than it was in the first quarter. You did an excellent job in your forecasting, and we clearly have good visibility on the solid customers but the weak part of our visibility is Europe and the Far East because all of the travel going to on with SARS, everybody's blaming all of this stuff. It's factional. Don't know what is going on over there between the Iraqi war and everything else. All of those have a bearing on people placing orders and stuff, and we don't have good visibility on some of these weaker operators. The solid pieces we do, so we just can't see much farther than one quarter. We don't like it any better than you do, but it's just a fact.

I'll try this one. With respect to OFS BrightWave, it's indicated in the press release, and I think you may have stated this previously, that you anticipate, um, a loss, at least in terms of how you report the equity income or loss through at least 2003. Do you think we could see continued improvement on a sequential bases where the loss is somewhat less each quarter than in the prior quarter?

Well, we don't run the operation as you know, Larry. It's run independently. We certainly would hope so, and they're certainly made tremendous progress if you look at the numbers from where they have been, and we would certainly hope they continue to do that. So again, from where they have been to where they are now is a tremendous improvement. We would hope so.

The losses, first quarter, are half of what they were in the first quarter of last year on essentially the same sales

They made tremendous progress, Larry.

Yes, they have. Okay, thank you.

Your next question will come from the line of Jeff Beach with Stifel, Nicolaus & Company. Your line is open, please proceed with your question.

Okay, thanks. The second quarter sales that you're looking at is, you know, roughly in line or maybe a little better than the fourth quarter that you just had, but the gross margins are, you're anticipating being down 150 bases points to 250 bases points. Is that, you know, on kind of the same volume, is that primarily cost pressures or cost pressures plus pricing?

More cost than pricing. What happened is that we're trying the polyethylene price increase was substantial, and we just can't work it through the income statement and the cost models. We have productivity improvements every weekend. It will take at least six months to work through that because we have contracts that we can't move through on any kind of pricing model until we can work through it when they come due, so it will be a -- it's a product line mix and a raw material mix more than it is a deterioration into any one particular price model. There is tremendous pricing pressure in the fiber-optic price model. The fact the only one continues to see price declines and those are starting to stabilize somewhat according to reporters, they're seeing stabilization and we're seeing stabilization, but it's still under tremendous pressure.

All right, and I know you talked about the lack of visibility quarter to quarter, but is there, um, higher sales shaping up from CommScope in the, um, um, CommScope -- Comcast in the third quarter from the second quarter from what you can see of the bill that is expanding?

Well, I would say that Comcast is running an excellent progressive build, and I wouldn't say there is a huge uptake in that. They're at or had of every one of their projections, they have given all the suppliers, all the vendors and all the capital goods people and all the contractors that are building. I don't think you can look at Comcast is as being the savior for any one of the vendors. They're just doing an excellent job on what they have to do. We have to get one of these other legs of the stool back operating. Comcast represents 23% of the sales, they represent 23% of the industry, so there is not enough they can do to make a huge change either way. They're just that scale. You can't have Adelphia and Charter and some of these other people not doing anything to have anything that's normal. So, they're clearly at a pace that is wonderful but I can't imagine they would increase to make a difference.

Thanks.

Yes, sir.

Your next question will come from the line of James Jungjohann with CIBC Oppenheimer. Please go ahead.

Hey, guys

Hey JJ.

A housekeeping question. When you look at the book-to-bill, or your backlog. Any mix changes between T&D and drop?

For the first time we had a mix change that was -- this quarter gave a slightly high percentage to drop order. It's nothing that we're overly concerned about because you have no Adelphia. So we had a 60/40 ratio for years this is the first time the ratio dropped less than 60, more than 40 drop because there is no in T&D in Adelphia whatsoever.

But --

Adelphia still taking drop order. They have to hook up customers.

Right. You would think that at some point in time during a Comcast ramp, knowing that there is rebuild, you can see more T&D. Did you ever see that or did you anticipate to see that?

Well, I don't think that you ever, again, I think you have to understand the pace that we're seeing is not much different than the pace we saw before because our percentage share of Adelphia, I mean our percentage share, excuse me, of Comcast and AT&T is basically the percentage share of that market we had before. One plus one equals two like we had before. They were building, AT&T was building, we didn't lose market share or gain market share in that particular issue. None of the math would change. The math will change in the percentage of T&D versus any of the drop-off, the falloff of Charter and the falloff of outside line construction at Adelphia, which drove the -- basically the hookup connection, the drop are going to be a larger percentage.

Okay, and my last follow-up is on the not OFS, but your own fiber business, Frank, and that is -- that is, um, house pricing on MSL fiber sales, how do you think year-to-year pricing looked like, I don't know if you had something quarter-to-quarter. Do you think you're still taking share? Are the low-hanging fruit, have you already plucked that, is that still -- are you still gaining share on fiber?

Well, prices, clearly price year-over-year is basically what happened to the rest of the marketplace, it's probably down 28 to 30%, so we suffer the same decline in pricing as the aggregate marketplace does. Because the fiber is generic to both the telecom into the CT industry. That is what it is. We're being supported by [INAUDIBLE] we have lower pricing on the fiber and we're continuing to gain market share, substantial market share position as you can see, the fiber business becomes a greater percentage of our overall business in CommScope, and I would say we're approaching on the same market scale, market share percentage that we have on CATV and fiber so the team's done a great job.

What I'm trying to figure out then is if the fiber business kind of stabilizes how that's going to hit your gross margin line? I mean is it -- are we going to see gross margins stabilize or -- how should I look at that, you know, impacting the gross margin line going forward? If fiber starts to stabilize?

Well --

Is it a big factor in terms of next quarter?

It's a major factor. I doubt anybody in the world understands the fiber market better than you do. At some point, if you can get this market to stabilize where these - both Corning and OFS have brought their cost down where you hit break-even at sales value, you would see a tremendous lift in this bottom line, cost-of-goods-sold position. You have to have the impact of these lawsuits that are going on by OFS against the infringing fiber suppliers to get this thing shut down where don't get the dumping going on.

Okay. Thanks, Frank.

Yes, sir, thank you.

Your next question is from the line of Richard Diamond with Inwood Capital Partners. Your line is open. Please proceed with your question.

I have a couple of questions. One, it's fair to assume that Comcast has worked through their excess inventory, is it not?

Yes, absolutely. I think Comcast has excellent controls on all of their operational aspects, the management of their turnover, their equipment, their contractors. I don't think there is anything excess out there whatsoever. The only issue you might have is, in fairness, you may have some delays, not caused -- I hate using these as excuses because you hear it all the time. You may have had some delays, they couldn't start projects because of the weather, which mean there is inventory that has not been installed, meant to be installed, delays in that. There is nothing in there that hasn't been properly worked through.

Is it fair to say so far in April the weather's been positive and the building is going on in.

Absolutely. I don't think there is anything now not in progress.

Secondly, it might be 2004 until the opportunities come along, could you just sketch out for us how big the, um, opportunity could be at Adelphia, they come back in terms of revenue and, um, potentially what Germany could be as well?

You have to assume for a moment that Adelphia, it was running at a pace of something on the order of 15 plus or minus million a quarter for CommScope this quarter last year, right?

Correct.

So this quarter last year, we were shipping, um, at that rate, and they're still the same, Adelphia. So, um, now you assume that Adelphia represents -- and Germany represents basically a Comcast. And Comcast represents 23% of our total sales. If you add Comcast and Adelphia together, and this is Frank Drendel back-of-the-envelope math, but that's what you could add. You clearly have the potential, the very reasonable uptake in these two markets and you still have Charter who is functioning, but isn't doing any significant capital work. So, there, hopefully is some more legs left in this industry. Now, that doesn't include our fiber position into those opportunities in Germany because we're the only integrated supplier both fiber and coax in Europe.

And would you have to add additional SG&A to support all that?

No, we have both the physical capacity and engineering resources and manufacturing resources because we would have to add costly plant people.

But you want to have to add additional --

No.

Research and development.

No.

You wouldn't have to add additional Cap Ex.

No.

Nor sales.

Nor sales. The capital's been spent. The facilities are there. The equipment is in excellent shape. We rotate the equipment. There's substantial equipment still mothballed. That we have. We just need a healthy telecom industry.

Thank you very much.

Yes, sir.

Your next question is from the line of Jack Whalen with Bluefin Resource. Please go ahead.

Frank, I would like to see if you can flip back over the envelope one more time. I think the guidance you're giving the 130, 145 number, to me it seems being a little bit conservative, see if I'm heading in the right direction here. Q1 was seasonably a pretty, um, weak quarter for you. Certainly the weather, um, did effect the business, at least that's what I'm hearing in the channel check side of business. When you couple that with some strength that I'm seeing, not only from Comcast, but from other cable operators, do you think the 130 number is, I mean, just reaching way too low or is there something that you kind of -- keeps you awake at night, about the 130 number.

Again, the visibility is so foggy. I hate the word "visibility" and I hate the word "foggy." But it's factual that there are so many things that happened now that changed in the last 90 days. We're trying to be -- you don't get awards for missing. We're trying to be as straight forward with you with all the information we have right now.

For instance, we -- we were packaging such tremendous amounts of cable and fiber together for these customers that they were accepting our shipments into zones they weren't being able to put it in. Some of the goods are there and still not installed. We may have been able to make shipments when other guys weren't because of weather, because they wanted the shipments to hit their warehouses. A lot of the facts, we got to ship against the weather, because we could, because we have our own fleet. There was a whole bunch of things that are real affecting these things, so our view has been that it's so you can't have stability when you have two major customers kind of out of the sequence. So we agree with you that there is hope out there that it could be a very, very healthy second half, but we're not about to get out there in front of them.

Okay, a quick follow-up on the second half. Previously we talked about what we expected out of Europe, particularly Germany in the second half. I think I heard you say that was not going to materialize at all?

Germany's real, but not going to be real the second half.

Okay.

They will not get through the settlement on the last piece of the acquisition of those properties. I can't imagine they're going to get that done.

Right. Okay.

The promise of Germany is there, but I don't know when.

Good. Thank you very much.

Yes, sir.

Ladies and gentlemen, as a reminder, to register for a question, please press the 1followed by the 4. Your next question will come from the line of Tim Sevato with Terrapin Research. Your line is now open. Please proceed with your question.

Thanks, good afternoon.

Good afternoon, Jim.

A few quick questions, um, first on the LAN front, I wonder if you could tell me how much of that goes direct versus a distribution channel. Secondly on the Q2 visibility issue, just trying to reconcile a couple of different comments. You did indicate it's foggier on the other hand, the high end of your guidance is up 10%, that's not so bad, we heard from one of your big competitors, looking for flat type of results. I guess I'm trying to get a sense what have kind of real visibility you have to that forecast, and may be you can give a sense of how much of your business normally turns versus backlog. That would help a little bit. Thanks.

Sure, I will start with some of that on the visibility question, um, we have limited visibility through the backlog. Our end of the year backlog was $26 million. With the book-to-bill to the quarter, that didn't change a big deal during the quarter, so we do not have a lot of visibility that -- that comes to us through our backlog position. Um, the seasonal uptick we have seen seasonal improvements up quarter-to-quarter most years but not every year, and so we always have to hesitate somewhat from the -- when we say that we expect seasonal increases, sometimes they get offset by larger factors, so, but -- but assuming a seasonal increase, you know, the range that we gave, we think our reasonable based on our backlog and other situations at the end of the quarter.

And you had a question I'll let Brian address on the question, direct versus indirect. Clearly, Brian has been modifying his model with a great deal of success with that team.

Yeah, Tim in, that product line there is a, um, -- there is a sizable sales organization that is unique to that LAN market. Um, as they create the end-user demand, they're the ones who were working with the end customer. The materials were sold almost exclusively through distribution in support of that demand.

There is sort of a difference between end customer and the delivery --

As opposed to the sales-type of volume.

Exactly right.

Okay, thank you, guys, I appreciate it.

Yes, sir.

The next question is from the line of Alan Strutter with McMahon Securities. Hi. I was wondering what you [INAUDIBLE] with your balance sheet.

You're sitting with a lot of cash that's probably not earning a lot of money and you convert, while a 4% coupon is not large, they're trading at a discount. I was wondering if you had any thoughts of buying your debt back or what you were thinking of doing with the excess cash.

I'll never say never to anything because in this telecom world, you never know what to expect. We obviously look at that, you know, both the bonds and the stock in our view, are undervalued. Right now, we want to see a more stable business environment before we would make any decision to use our precious resource to do anything to change that. If I can see the way that the market has wander-legged and the stock stayed depressed, and the bonds stay depressed, I may change that opinion, but right now, I have got to get a little more stable customer base, if you can understand that.

Okay. Thanks.

Yes, sir.

The next question is from the line of Alan Mechaney with Copperbeat Capital. Please go ahead.

Thank you. Can you remind us any movement, on two issues, any movement on the Adelphia NOL this quarter, what is the size of it this quarter? Excuse me, the Adelphia receivable that you have.

No, we only know, sir, that there is no difference in where we carried it, we've written it off completely. We know they're trading, people trading those receivables in open-market situations, and I think last time we heard they were in the 35, 40 cent range.

We heard of quotes as high as 40% but, um, that generally has been in the 30 to 40% range, Al.

Okay.

We wrote off $21 1/2 million.

Also, what is the cumulative amount of NOLs you have right now that you can access over the next few years from your OFS BrightWave equity investment?

Well, we're able to um, utilize the operating loss that was created by the OFS BrightWave investment for 2002, um, in fact we expect tax refunds coming from that net operating level, coming in 2003.

Okay, but the cumulative -- I guess I could take a look at the beginning. That's fair. Thank you.

Yes, sir.

Ladies and gentlemen, as a reminder to register for a question, please press the 1 followed by the 4. Your next question will come from the line of Tim Maity with Primary Fund. Your line is now open. Please proceed with your question.

Good afternoon, gentlemen. Trying to get a better idea of in visibility on the LAN business, um, if you could help me, how much of that is direct, and how much of that is true, distribution, and if you could characterize the strengths you're seeing there. Thank you.

Tim, we responded to that just earlier. You must have just popped in. The entirety of that business channel through our distribution partners, but we have good visibility, um, relatively good visibility and a lot of the business is project-driven, so there is a dedicated sales organization, um, for LAN products, um, it's working projects with end-users that may have a sales cycle of anywhere from, you know, two to 10 months. So there is a pipeline in the business that does give some level of visibility.

Great, thank you.

Yes, sir.

Gentlemen, I am showing no further questions at this time. Please continue with your presentation.

Thank you, Ladies and gentlemen, thank you for supporting us and we'll hopefully have a better quarter.

Thank you.

Thanks.

Ladies and gentlemen, that does conclude your conference call for today. We thank you for your participation and please ask you to disconnect your lines.