Dycom Industries Inc (DY) 2003 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Dycom earnings conference call. At this time all lines are in a listen-only mode. Later, there will be a question and answer session and instructions will be given at that time. If you do need assistance during the conference today, please press the zero followed by the star. As a reminder, today's call is being recorded. At this time I'd like to turn the conference over to Mr. Steven Nielsen, please go ahead sir.

Thank you Ken. Good morning everyone. I'd like to thank you for attending our third quarter fiscal 2003 Dycom earnings conference call. With me we have in attendance Richard Dunn our Chief Financial Officer, Tim Estes our Chief Operating Officer and Mike Miller our General Counsel. Now I will turn the call over to Mike Miller.

Thanks Steve. Statements made in the course of this conference call that state the companies or managements intensions, hopes, beliefs, or expectations of forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the company's S.E.C. filings including but not limited to the company's report on form 10-K, for the year ended July 27th, 2002, the company's quarterly report on form 10-Q for the quarter ended October 26th, 2002, and the company's quarterly report on form 10-Q for the quarter ended January 25th, 2003. Copies of these filings may be obtained by contacting the company or are available on the S.E.C.'s Website. Additionally, during this call there will be references to certain non- GAAP financial information. This information has been reconciled to GAAP in the company's press release of yesterday that has been posted on the company's Website. Steve.

Thanks, Mike. Yesterday we issued a press release announcing our third quarter 2003 results. Please note that for the third quarter of fiscal 2002, our GAAP results included a non recurring gain of 2 cents per share due to the settlement of a federal employment tax issue relating to prior years. Consequently, in order to ensure accurate comparisons all references to the year ago quarter exclude this nonrecurring gain. Total contract revenues for the quarter ending April 26th, 2003 were 139.7 million versus 169.7 million in the year-ago period, a decrease of 18%. Net income for the quarter was 2.8 million versus 6.8 million, a decrease of 59%. While fully diluted earnings per share was 6 cents versus 15 cents a decrease of 60%. Backlog at the end of the third quarter of 2003 was 996.4 million versus 789.4 million at the end of the second quarter of 2003, a sequential increase of 207 million. Of this backlog, approximately 474.2 million is expected to be completed in the next 12 months. Our third quarter results demonstrated the soundness of our business and were encouraging for several reasons. Sequential revenue increased slightly from the prior quarter despite difficult weather conditions in February and March. More importantly our outlook for the next quarter indicates a further and more significant increase in revenue. In fact our forecasted fourth quarter revenue indicates year over year quarterly organic growth will resume for the first time since our quarter ending January of 2001. Backlog increased sequentially by over 26% from our January quarter, and included several new cable upgrade projects as well as several notable master contract additions and extensions for a major telephone company. Gross margin increased by 296 basis point sequentially from the second quarter to 21.7%, despite weather impacts and startup expenses for several new contracts. Liquidity remained amount at 118 million in net cash despite capital expenditures and other cash payments of $15 million to start two noteworthy master contracts. Day's sales outstanding were 88 days, reflecting a respected increase due to a mixed shift towards cable customers while working capital and our current ratio increased sequentially from the prior quarter.

During the quarter we continued to experience the effects of a slow overall economy, telephone company capital expenditures below year-ago levels and the lingering impact of [Adelphia's] withdrawal from the cable marketplace. However these were offset by sales to Comcast which accelerated throughout the quarter and a normal seasonal increase in revenue with some telephone company customers. These developments appear to confirm our previous view of firming and improving performance in the spring of calendar year 2003. Sales to Comcast increased sequentially in the quarter by over 35% to 56.7 million. Comcast was Dycom's largest customer for the quarter at 40.6% of sales. During the third quarter, we were awarded two new contracts for Sprint which are expected to increase revenues by in excess of $47 million per year. The first contract represents a significant expansion of our construction and maintenance services for Sprint in its Mid Atlantic region including all of Sprint's service stair territory in Tennessee and Virginia as well as the Fayetteville and Dunn Districts in North Carolina. It is for a period of five years. We mobilized over five years, 390 pieces of capital equipment to start this contract, within 45 days of contract award. Our second contract with Sprint covers underground locating services throughout the entirety of its service territories in Florida, North Carolina, South Carolina, Tennessee and Virginia. For this contract, we have mobilized 175 in-house personnel. This contract is in effect through December of 2005. Overall our employee headcount stabilized at 4999. Additionally subsequent to the end of the quarter we were encouraged by Adelphia's announced agreement with its debtor in possession lenders to enable access to its full $1.5 billion facility. Adelphia went on to further state the intent to rapidly implement a network upgrade plan. Perhaps most interestingly and also subsequent to the end of the quarter, BellSouth, SBC Communications and Verizon jointly announced their adoption of a set of common requirements for a technology known as fiber to the premise are or FTTP. Each of the telephone companies involved went on to state that these new standards would be integral to their future plans to expand fiber optic cable deeper into their outside plant networks. This may indicate a possible upturn in telephone company capital expenditures and fiber deployments in calendar 2004.

To maintain a tight handle on our cost structure we have continued several initiatives to help offset pressure on operating margins. First we will maintain, growth opportunities. Excluding expenditures in support of our new Sprint contracts, we had actual proceeds from disposals of capital equipment which exceed our capital equipment additions by over $300,000. Our fleet of capital equipment is in good condition and significantly reduced investment will have little or no impact on operational expenses. Secondly, we will continue reductions in general administrative expenses to better in line our administrative cost with individual subsidiaries anticipated levels of activity. In fact we consolidated the subsidiary corporate G&A and additional reporting unit during the quarter and are continuously evaluating additional consolidations as necessary. In addition to the previously mentioned Sprint contract additions we enjoyed several new contract awards and extensions during the quarter. For Comcast we received contracts for system upgrade work in Ocean City Maryland and Gadson Alabama, Philadelphia upgrade projects for [Inaudible] and [Inaudible], California, and central Kentucky and for general communications a locating contract in Anchorage Alaska. For telephone companies we received an 18 month extension from Qwest for flagstaff Arizona and from Sprint a new four year contract extending our work in Jefferson City, [Inaudible], and Lawrenceburg District in Missouri. In addition we extended our work in rocky mountain North Carolina and South Carolina for Sprint for five years. As Dycom responded to a challenging environment this quarter we demonstrated our continued stability and unparalleled ability to profitably respond to growth opportunities. First and foremost we maintain strong customer relationships throughout our markets. In particular, growth with Comcast and Sprint was encouraging. Net cash remained ample and we maintained a strong working capital position.

While our pricing environment remains tight we remain focused on time tested cost controls and productivity improvements as we continually evaluate appropriate staffing and capital equipment levels. If economic condition begin to ease, and perhaps improve, we firmly believe that Dycom superior financial health will increasingly allow us to differentiate ourselves from our competitors in the eyes of our customers, employees and suppliers. Dycom's financial strength is key to our belief that as growth opportunities return to our industry we will be in the first and best position to take profitable advantage of them. We believe that this advantage relative to other industry participants becomes more pronounces every day. After weighing all of the factors we have discussed today we have updated our forecast as follows. For the fourth quarter of fiscal 2003, we anticipate earnings per share of 15 to 20 cents on revenues of 150-165 million. This outlook anticipates a stabilizing economy in the U.S., normal seasonal weather, continued increased spending by Comcast on its acquired systems, firming seasonal demand from our telephone customers and increased revenue from our new Sprint contracts. Looking beyond the fourth quarter we anticipate earnings per share of 16 to 21 cents on revenues of 150-165 million, for the first quarter of fiscal 2004. This expectation is based on the continued impact of those factors cited for the fourth quarter, along with a prudent caution regarding the sustainable direction of intermediate capital spending particularly by telephone companies.

And finally, recent developments continue to indicate that substantial competitive capacity may be less able to respond to increased future customer demand due to capital constraints. This trend may continue even as customer demand potentially increases. At this point I will turn the call over to Dick Dunn our CFO. Dick.

Thanks Steve, before I begin my review let me point out that we have eliminated the following two items from our GAAP results for the prior fiscal year. For the quarter and nine month period ended April 27th, 2002 we recorded a nonrecurring gain of 2 cents per share related to a federal tax issue relating to years prior to fiscal year 2002. My discussion will eliminate the impact of this gain. Second the results for the nine month period ended April 27th, 2002, include an after tax non-cash impairment charge to goodwill of 86.9 million or $1.97 per share. This goodwill impairment is the cumulative effect of adopting accounting standards 142 and required there by the first quarter of fiscal 2002 has been restated to reflect this charge. Again, for purposes of my discussion in the financial results are eliminating this charge. A reconciliation of these non-GAAP financial measures to the corresponding GAAP measures has been provided as a table which has been furnished to the S.E.C. and is available on our Website. With that in mind I will begin my overview of our quarterly financial performance starting with the income statement. Contract revenues for the current quarter were 139.7 million down 17.7% from last year's Q3 of 169.7 million. Excluding revenues attributable to subsidiaries not owned for the entire Q3 of fiscal year 2002, revenues for the current quarter would have been 111.7 million compared to the 143.2 million same period last year a decline of 22%. Total revenues for the nine-month period ended April 26th declined 8.5% to 435.3 million, versus fiscal year 2002 revenue of 475.8 million excluding revenues attributable to subsidiaries not owned for nine months fist fiscal 2002, revenues for the nine month period would have been 342.3 million to the same period last year a decline of 23.8%. For the quarter, the top five customers accounted for 71.6% of total revenues versus 64.2% for the prior year's third quarter.

For the nine months ended April 26th, sales to the top five customers as a percent of the total was 61.9% versus 59.7% for the prior year. The top five customers and their respective percentages for Q3 of fiscal year 2003 and 2002 is as followed for Q3 of 2003 the top five customers were Comcast at 40.6%, BellSouth at 13.8%, Sprint at 6.4%, Qwest at 6%, and Adelphia at 4.8%. And top five of fiscal year 2002 Q3 Adelphia 18.5%, BellSouth 16.6%, Comcast 15.5%, DirecTV 6.9%, and Charter Communication 6.7%. Net income for the third quarter was 2.8 million versus 6.8 million in fiscal year 2002 representing a decrease of 58.8%. Net income for the nine months ended April 26th decreased 70.7% to 5.8 million versus last year's 19.8 million. Fully diluted earnings for the quarter were 6 cents per share a 60% decrease from last year's 15 cents per share results. EPS for the nine month period ended April 26th decreased 73.3% to 12 cents per share versus last year's 45 cents per share. Operating margins for the third quarter declined 375 basis points coming in at 2.68% versus last year's 6.43%. This decrease was due to a 247 basis point increase in revenues a 93 basis point increase in general and administrative cost and a 38 basis point increase in depreciation and amortization. Operating margins for the nine month period declined 481 basis points versus last year's 6.52%. This decrease was due to a 225 basis point increase in cost of earned revenues, 150 basis point increase in general and administrative cost and 106 basis point increase in depreciation and amortization. Depreciation expense for the third quarter declined 1.3 million from the prior year. This decline was primarily due to the run out of depreciation associated with the fiscal year '98 capital additions and the sale of assets during the current fiscal year.

The effective tax rates for the quarter or nine month periods were 41.2% and 46.2% respectively versus 43.3% and 42.5% respectively for the prior year's periods. Net interest income for the quarter in nine months was 346,000 and 991,000 respectively versus 505,000 and 2.1 million for the prior year. This decrease was primarily result of declining short term interest rates and reduced cash balances as a consequence of the repayment of the debt acquired in the Arguss acquisition. Our interest income is generated in investments in high quality municipal and corporate instruments. From the quarter our cash flow from operating activities was a negative 4 million dollars. The primary components of this cash flow was net income of 2.8 million, depreciation and amortization of 8.9 million, offsets by increases in working capital of approximately 15.7 million. Investing in financial activities for the quarters used $9.3 million. This use of cash consisted of capital expenditures of 10.6 million partially offset from sale of proceeds of 1.3 million. Cash and cash equivalents at the end of the quarter were $118 million down 13.3 million from the prior quarter. During the quarter necessary receivables increased from 99.9 million to 105.3 million, resulting in a DSO of 68.6 days, versus 63.3 at the end of the second quarter, an increase of 2.3 days. Net un-bill revenue balances increased in the quarter from 22.9 million to 29.9 million, resulting in a DSO of 19.5 days, an increase of 4.3 days from Q2's figure of 15.2 days.

On a cumulative basis the combined DSO for our trade receivables and unbilled revenues increased from 81.5 days to 88.1 days an increase of 6.6 days. At April 26th the accrual for our self-ensured casualty program was unchanged at 21.6 million, of this 21.6 million approximately 12.1 million represents incurred but not reported claims. Steve.

Thanks, Dick. Now, Kent, we will open the call for questions.

Thank you. Ladies and Gentleman if you do want to ask a question please press the 1 on your touch tone phone. You will hear a tone indication that you have been placed in queue. You may remove yourself from queue by pressing the pound key. If you are using a speaker phone you may need to pick up your hand set before pressing any of the numbers. Once again if you do have a question please press 1 at this time. Our first question comes from Joe Gladue (ph) from Chapman.

Congratulations on a positive quarter.

Thanks, Joe.

Two Sprint contracts, I was just wondering if you could tell us, were these contracts that were I guess taken from another incumbent?

Yeah, they were gains in market share from a couple of private competitors.

Okay. And along those lines, are you, you know, you think you'll be seeing more of the same with that, you know?

I mean Joe as we said before we're very careful about the market share we gain, because you know, we've been in a no or slow growth environment. We don't want to build in, you know, poor margins in our backlog. But in this particular case and others that we're looking at, when we see an opportunity to grow, we think we do have an advantage based on the balance sheet and the strong subsidiary management that we have.

Okay. One other customer question. You said you got some new contracts with Comcast. Are there still contracts they have to let that you're aware of?

know, the significant majority of their upgrade plan has been allocated as we've talked about previously.

Okay. All right, thank you.

Thanks and we do have a question from Alex Rygiel from Freedman Billings Ramsey. Please go ahead.

First congratulation on a nice quarter and its nice to see the business opportunities are improving.

Thank you.

Couple of quick questions first can you confirm that Comcast revenues will increase going forward?

Yes, I think we can look at this quarter and you know, that when we swap July or swap May for February that those revenues are going to be up. So we think sequentially they will be up.

Secondly with regards to the two Sprint projects when did you start them in the quarter and how much of the $47 million of annual revenues did you actually book in the quarter? Was it a very small amount or was it a fair 25% of that $47 million?

That 47 million is a run rate. I think we probably booked in the neighborhood of 3-3.5 million on the one contract which had started the first of April so only four weeks in the quarter. And that the other contract startled actually on the 26th or 27th of April, so did not have any impact on the quarter other than some startup expenses.

Great. With regards to the two interesting opportunities, both Adelphia and the [RBOCs], first with with regards to Adelphia, you did mention one or two markets where you are starting rebuild activity. How fast do you expect the Adelphia opportunities to ramp up, is that a July quarter opportunity or is that an October opportunity? And then with regard to the RBOCs and their announcement last week regarding fiber to the premises, can you talk about activities you performed in the past of a similar nature and what types of revenues and margins you had from taking fiber to the home in the past and what your visibility is going forward in '04 and '05 with regards to that opportunity?

You know, I think we are seeing Adelphia ramp up in this quarter. But I would think the more significant impact is more likely in the first quarter of fiscal 2004. With the new management team coming in and getting their financing in place, they've also gone back and looked at some of the design criteria so that there are significant number of projects that are in redesign. And so that tells us that they're coming, but they're not quite here yet. In terms of the fiber to the home, you know, we have participated in putting in fiber to the curb, particularly for BellSouth going back to 1995. And I think we've always experienced, you know, solid margins in that work activity, generally consist of the you know underground trenching and placing of fiber cable and closures and that's exactly what we know how to do and have done for some time.

One last question regard to D&A, since your CAPEX have come off from the very high levels of ’98, '99, and 2002. Do you expect deprecation and amortization continually to show sequential decline over the next four quarters or so?

Not for the next couple Alex.

You have the $10 million that we spent on the Sprint so that's rolling in. And that offset some of the decline. We may have to take a look at it again, a year from now, when there were other substantial purchases in '99.

Great, thank you.

Thanks and we do have a question then from Priefer Investor Scott Moore (ph). Go ahead.

Hi, Steve, congratulations on the quarter. During the last conference call you stated that three underperforming subsidiaries would cease operation in the quarter just ended. Did this happen and if so then which subsidiaries were shut down?

What we did, Scott, in one case we actually did shut down a couple of them. In the other case, we took the field activities and reallocated those to two other subsidiaries.

Okay.

So -- and because of the way our legal structure is, those subsidiaries are still active companies, so you're not going to see us tear them off the list. Functionally, they have been consolidated.

Okay. What is the status of Concepttronic, a former subsidiary of Arguss which Dycom acquired when it bought Arguss?

They have been disbanded for about a year now.

Okay.

There was a very immaterial piece of Arguss transaction. We got out of that business as quick as we could.

Great. Finally would you please comment on where you stand regarding recovery of money owed Dycom by Adelphia for work done prior to the Adelphia bankruptcy? I think it was originally about $40 million that they owed Dycom.

That's correct. If you followed the Adelphia bankruptcy, they have filed for several extensions to get in -- for the company to propose a plan of reorganization. And the next deadline I believe is in August. And so we are just monitoring the situation between now and when that plan is reorganized. There is really nothing that can be done in the bankruptcy process. I think we are encouraged that WorldCom has been able to at least get a plan out there that most folks have agreed with. And also, that you know, Adelphia continues to perform relatively well, and actually, you know, generate some cash. So -- but between now and August, there's really no news of any importance.

All right, thank you very much.

Thanks and we do have a question from Steven Fox with Merrill Lynch. Please go ahead.

Good morning. Can you talk a little bit about, first of all when you look at the Sprint contract when do you hit a full run rate for it?

I would -- the first contract, the construction and maintenance contract, we are there for the entirety of this quarter. On a locate contract, a portion of it was just phased in last week. So I would say, you know, full run rate by mid June to first of July.

All right. And then Steve, can you talk a little bit about the effect of DSL price declines could have on your business near term say the next couple of quarters and then maybe longer term?

Well, you know, it's a very interesting question. Obviously, as they make DSL more attractive the phone companies are hoping for higher penetration rates. And to the extent that that taxes their in-place infrastructure, they are going to have to support that growth with at least stability CAPEX if not growing CAPEX. And if you tie the Verizon pricing move on DSL with this fiber to the premise announcement it appears that the -- that the [RBOCs] are going to be more active in the residential data market. And the second half of your question, Steve?

Just looking at -- I guess what you're saying about DSL is it makes you feel a limb better '04 capital spending but doesn't give any near term impact to your business really?

I wouldn't say that it's significant. I think it's a firming of CAPEX rather than a, you know, significant change. And I think in part if you were an RBOCS, and you're becoming more comfortable that the cost of fiber to the premise is going to come down and be more economic, they're going to weigh that opportunity versus, you know, significant major investments in DSL.

Okay. Two quick financial questions. Are you still targeting 25-26% gross margins and what type of revenue run rate do you need to achieve that?

I think if you look at the revenue targets that we've provided, Steve, and you take a look at the EPS guidance that you model it out that we're still there.

Okay. And then last question would just be on cash usage going forward, it sounds like you're going to have some working capital requirements. On incremental sales how much working capital do you think you need these days?

If DSOs are running 85 to 90 days and we have a sequential quarter we increase of 20 million or better, we will probably use up about 20 million in cash. We work every day, you know, to drive that down. But you know, that's a good thing. It's like spending money for capital equipment to support new contracts, when you have customers like Sprint and Comcast, spending money is a good thing.

Thank you.

We do have a question from Barry Posternack (ph) with Conseco Capital.

Good morning. Do you have the mix between cable telecommunication and utility?

Yes, I do Barry. For Telco we had 34.6%, cable 53.6%, utility locating 8.9% and electrical and other, 2.9%.

Okay. And with regard to the several new cable upgrade projects that were mentioned, could you review those, who they're with?

Yeah, we talked about two projects with Comcast one for Ocean Cities Maryland, another in Gadsden, Alabama and be we talked about a couple of cities related project in Southern California for Adelphia and then a project for Adelphia in central Kentucky in the Lexington area.

Okay. What kind of projects are the Adelphia ones?

They are upgrade projects.

Okay.

I don't know if they're 450 or 550 upgrades but they're traditional upgrade projects.

All right, thanks.

We do have a question then from Michael Christodolou (ph) with In-wood Capital. Go ahead.

Good morning gentlemen. I wanted to explore the Comcast and Sprint new business wins to better true future. If you could characterize those wins would you view they are wins, quantify two or three private competitors you won the business from or was it 15? And I'm going to explore that because I'd like to understand you know, are these private companies were they viewed as either too regional, too undercapitalized or incapable of mobilizing as fast as you did or was it that the vendors wanted to reduce the number of contractors they're working with or was it price?

Or was it all of the above?

Or all of the above.

We'll work through. On the cable side those Comcast projects and the Adelphia projects are markets where we are traditionally strong, and I think we were, you know, through past performance, and competitive pricing, I think we were the right folks for those jobs. So we did not take those projects from anybody. We'd like to think we earned them with what we've done for those customers in the past. On the Sprint opportunities, the construction and maintenance agreement was -- the work was shifted from a private competitor. It did result, because they -- it combined with some areas in North Carolina and South Carolina that we had previously already had the contracts for. And did give the customer greater mass in a particular region. So that in fact, you could look at it as, you know, trying to deal with larger vendors in less than a region. On the locate opportunity, once again that was a single private competitor, and you know, we just think that that was one of those competitive opportunities where we were at the right place at the right time with a good price.

Great. What are you seeing for pricing on these contracts over time? Are there step-ups built in for cost or inflation?

There are, you know, kind of traditional telephone industry CPI-related index increases at various points in the life of the contracts.

Okay. And lastly what are you seeing in terms of labor and capacity out there in the system, in terms of perhaps additional wins that you may get? Are there trained bodies out there, or could we see some, you know, constraint and end talent such that it may help pricing over the next year or two?

Sure. I would think right now we did not have difficulty in mobilizing the labor for tease projects. So I think there is labor that's available. We haven't seen any significant pricing pressure to our labor, although we'd certainly be happy, because that would generally be a good thing in labor business.

Great, thanks very much. Great quarter.

Thank you.

Once again if anyone does have a question please press 1 at this time. I am showing a question from Al Matrani (ph) from Copper Beech.

Did you purchase any stock this quarter?

No we did not.

Can you give us a status on your cash buyback. Are you putting it towards or getting new business. Are you still looking potentially to buy back some stock?

You know, at the right a price, and there is a number that we can't share, we would be buyers of the stock. We think that the cash that we put to work in the CAPEX and the working capital to grow the business out of the third quarter into the fourth quarter had a higher return than in repurchasing shares.

Also, you talked about Adelphia post year quarter, obviously they calm out and got access to a billion and a half of Div financing, and they put some new management in and if I would put some numbers in they could have potentially 30 plus thousand miles to upgrade based on trying to get to their 90% of their miles upgraded by some time next year. Any idea what kind of pricing it could be for them for mile? If you use Comcast numbers using roughly 30,000, it seems like it would be about a half a billion plus work coming out of Adelphia. Do those numbers make any sense in the next 15 to 20 months depending when they are getting out of bankrupt can bankruptcy?

I don't think they're going to wait until they get out of bankruptcy to pursue the upgrade plans, that is not the idea we are getting. The difficulty to compare the mile to mile of different cable operators is the mix of rural and urban cable systems. I would generally expect that Comcast would be a little bit more than Adelphia just because of, you know, a greater percentage of the Comcast systems being urban. On the other hand, it also is contingent upon the conditions of the systems and how much work has to get done. There is a few moves pieces but you know directionally, I would say somewhat slightly less.

Also how much was Direct TV in the quarter in terms of revenues?

It was a little less than 4 million Al, Dick will get the exact number.

How much of the sequential gross margin expansion was as you said basically the Direct TV effect going from [jettisoning] some of the low margin business that you negotiated, versus just executing your business better and chopping heads and just making sure your business is --

I would say more of the sequential increase was the pickup in the cable business. A normal season up tick in April on the telephone side, rather than any, you know, driving effect. Because you can't have a margin impact on a little less than $4 million in business and drive the overall significantly.

And to Steve's question, it sounded like 24 to 26% gross margins. We should startle seeing those in the next couple of quarters, then?

We would expect that in the last quarter we did see some credible and, we think, sustainable marriage expansion from March to April. So given that trend line, we think that's reasonable.

And then lastly if I can on the Telco side, I was actually impressed that BellSouth increased given they spent so little of their CAPEX budget in the first quarter. Are you hearing from some of your BellSouth companies that CAPEX spend will be up in the second half of a calendar basis of ‘03 versus the first half?

I think it's difficult to say Alan. I think everybody has noted that they did not spend what they had budgeted for the first quarter, yet they didn't change full year guidance. And the question is there will be a year when that gets resolved by them spending all of their budget money. That hasn't been the pattern for the last two years. So we're optimistic, but we don't have any, you know, direct information on the subject.

Do you expect that they'll continue to build backlog?

You know, when we have large master contracts that come in, you know, for multiple years, they tend to build backlog. The way that we have here. And you know, as we continue to bid work, we'll hope to drive it. But I'm not sure that we will see those kind of magnitude jumps, you know, in the near future.

Great.

Also a function of the economy.

Thank you very much.

Al 'to confirm Steve's recollection, 4 million was right on.

If anyone does have a question please press one at this time. At this time I'm showing no further questions in queue.

Well, Kent, thanks for moderating the call. We thank everybody for their attendance. We look forward to speak to you again with our fourth quarter numbers towards the end of August. Thank you. Have a good day.

Thank you. And ladies and gentlemen, that does conclude our conference today. Thanks for your participation and for using AT&T executive teleconference. You may now disconnect.