Dycom Industries Inc (DY) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Dycom earnings conference call. At this time all participant lines are in a listen-only mode. Later there will be an opportunity for questions and instructions will be given at that time. If you should require an operator's assistance during the call, please press star then zero. As a reminder the call is being recorded. I would now like to turn the call over to Mr. Steven Nielsen. Please go ahead, sir.

Thanks, Rita. Good morning, everyone. I would like to thank you for attending our fourth quarter fiscal 2003 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 company's or management's intentions, hopes, beliefs, expectations or predictions of the future are 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 SEC 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 26, 2002; the company's quarterly report on Form 10-Q for the quarter ended January 25, 2003; and the company's quarterly report on 10-Q for the quarter ended April 26, 2003.

Copies of these filings may be obtained by contacting the company or are available on the SEC'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 fourth quarter fiscal 2003 results. Please note that our fourth quarter fiscal 2002 GAAP results included several charges resulting from customer difficulties and bankruptcies. The cumulative affect of these charges was an after-tax charge of $59.9 million or $1.25 per common share diluted. Excluding these charges, net income for the quarter ended July 27, 2002 would have been $3 million or 6 cents per common share diluted.

Consequently, in order to ensure accurate comparisons, all references to the year-ago quarter exclude these charges. For the quarter ending July 26, 2003, total contract revenues were $182.9 million versus $148.2 million in the year-ago period an increase of 23%. Net income was $11.4 million versus $3 million dollars an increase of 275% while fully diluted earnings per share was 24 cents versus 6 cents, an increase of 300%.

Back log at the end of the fourth quarter of 2003 was $890.9 million versus $996.4 million at the end of the third quarter, a sequential decrease of $106 million. Of this backlog approximately $446.6 million is expected to be completed in the next 12 months. Our fourth quarter results demonstrated solid organic growth, significant margin expansion and a noteworthy increase in operating cash flow.

Revenue increased sequentially by $43 million from the prior quarter and revenue increased by over $34 million from the year-ago quarter. This represents an organic growth rate of 23%. Notably, our forecasted first quarter revenue indicates continued year-over-year organic growth which when combined with the organic growth of the fourth quarter will represent our first back-to-back quarters of organic growth since our quarter ending October of 2000.

Gross margin increased by 240 basis points sequentially from the third quarter to 24.17%, while sequentially G&A decreased 366 basis points to 9.06% and depreciation and amortization decreased 149 basis points to 4.87%. Both the G&A and depreciation and amortization percentages were favorably impacted as relatively fixed costs were leveraged by dramatically increased quarterly revenue.

Liquidity remained ample with over $129 million in net cash. Cash increased by $11.8 million during the quarter despite $3.6 million of capital expenditures net of disposals which were required to support our growth. Days sale outstanding was 78 days, a sequential decrease of ten days during the quarter.

Cash flow from operations totaled $13.8 million and both working capital and our current ratio increased sequentially from the prior quarter. During the quarter we welcome the effects of what appears to be a less sluggish overall economy. Telephone company capital expenditures, which though generally below year-ago levels, appear to be firming and accelerating spending by several cable customers. Revenue from Comcast increased sequentially in the quarter by 23% to $69.7 million. Comcast was Dycom's largest customer for the quarter at 38.1% of revenue. Additionally, revenue from Adelphia and Charter both increased sequentially.

New contracts initiated for Sprint during the third quarter performed at or above expectation, with spending firming throughout the fourth quarter, while revenues from BellSouth, Qwest and Alltel also increased sequentially. Employee head count increased to 5,259 at the end of the fourth quarter from 4,999 in the previous quarter.

Perhaps most interestingly, BellSouth, SBC Communications and Verizon continued their pursuit of common technical requirements for a technology known as fiber to the premises or FTTP. By issuing an actual RFP to Telecom equipment vendors for potential future procurements, on August 21st, the Federal Communications Commission issued its long awaited tri-annual review. While this ruling is almost 600 pages are still being analyzed in a process expected to take weeks, it does appear to provide significant incentive for residential broadband fiber deployments by incumbent telephone companies. More specifically, fiber loops deployed in Greenfield applications, such as new subdivisions, will not be subject to unbundled access by competitors. Furthermore, where fiber loops replace existing copper loops, telephone companies will only be required to provide competitors with a low bandwidth channel on the newly installed fiber loop.

Additionally, hybrid loops, which consist of a combination of fiber and copper, will not be subject to unbundled access if they utilize new packet ties [ph] switching technologies. All in all a very preliminary analysis indicates that these new FCC rulings may significantly improve the environment for capital expenditures by incumbent telephone companies. This may lead to a possible upturn in telephone company capital expenditures and fiber deployments in calendar 2004.

While growing, we retain a tight handle on our cost structure and have continued several initiatives to help offset pressures on operating margins. First we will maintain a reduced level of capital expenditures excepting growth opportunities and prudent upgrades to our fleet of capital equipment. Our fleet of capital equipment is in good condition and lowered levels of investment will have little or no impact on operational expenses.

Secondly, we will continue reductions in general and administrative expenses to better align our administrative cost with individual subsidiaries anticipated levels of activity. In fact, we may consolidate the subsidiary corporate G&A at additional reporting units. During the quarter we continued to book new work. For Comcast we received a contract extension for Palo Alto, California for system upgrade work. For Adelphia, an upgrade project for Palmdale, California, along with the reinitiation of several projects in New England. And for Bright House Networks, an upgrade project outside Orlando, Florida. Finally, in our locating business, we secured a new three year extension for Northwest Natural Gas.

As Dycom grew this quarter, we demonstrated our continued stability and unparalleled ability to profitably respond to growth opportunities. First and foremost, we maintained strong customer relationships throughout our markets. Substantial organic growth this quarter was encouraging as revenues with Comcast, Sprint, Qwest and Alltel all grew sequentially in year-over-year. Net cash remained ample and grew over $11 million in the quarter and our already strong working capital position strengthened. 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.

As economic conditions appear to be improving, 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 and strong customer relationships have been key to our ability to demonstrate significant organic growth for the first time in three years. We continue to believe that as profitable growth opportunities return to our industry, we will be one of the first and in the best position to take advantage of them. We believe that this advantage relative to other industry participants becomes more pronounced every day.

After weighing all of the factors we have discussed today, we have updated our forecast as follows: For the first quarter of fiscal 2004 we anticipate earnings per share of 22 cents to 27 cents on revenues of $165 to $185 million. This outlook anticipates a continued 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 sustained revenue from our new Sprint contracts.

Looking beyond the first quarter, we anticipate earnings per share of 12 to 16 cents on revenues of $135 to $150 million for the second quarter of fiscal 2004. This expectation is based upon the continued impact of those factors cited for the first quarter along with a prudent caution regarding seasonal winter weather patterns. 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 customers 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 the prior year's GAAP results contain several unusual items. In order to present a true comparative picture of this year's results to last year's results, the following items will be eliminated from our GAAP results for the prior fiscal year.

First, for the quarter and 12 month period ended July 27, 2002, we recorded an after-tax increase in our allowance for [Inaudible] accounts of $12.1 million and an after-tax impairment charge of $47.8 million related to the write down of goodwill and other intangible assets. These charges resulted from customer difficulties and bankruptcies. The total affect of these items on income was an after-tax charge of $59.9 million. On a diluted EPS basis, the total affect of these charges for the quarter and the year were $1.25 and $1.33 respectively. My discussion will eliminate the impact of these charges.

Additionally, the results for the 12-month period ended July 27th, 2002 include an after-tax, non-cash impairment charge to goodwill of $86.9 million or $1.93 per diluted share. This goodwill impairment is a cumulative effect of Adelphia and Accounting Standard 142 and is required thereby the first quarter of our 2002 fiscal year has been restated to reflect this charge. Again, for purposes of my discussions of financial results I will eliminate this charge.

With these items in mind, I will begin my overview of our quarterly financial performance beginning with the income statement. Contract revenues for the quarter were $182.9 million. Up 23.4% from last year's Q4 of $148.2 million. This increase is solely related to organic revenue activities. Total revenues for the year ended July 26th declined .9% to $618.2 million versus fiscal year 2002's revenue of $624.0 million. Revenue for the year on a same-store basis were down 12.4%.

For the quarter, the top five customers accounted for 71.8% of total revenues versus 58.8% for the prior year's fourth quarter. For the year ended July 26th, sales to the top five customers as a percent of the total was 63.9% versus 59.4% for the prior year.

The top five customers and their respective percentages of revenue for the Q4 of 2003 and 2002 are as follows: For the current fiscal year 2003, Comcast 38.1%; Sprint, 11.6%; BellSouth, 10.9%; Adelphia, 5.7%; and Qwest 5.5%. And for Q4 fiscal year 2002 Comcast at 18.5%; BellSouth, 17.1%; Charter Communications, 8.7%; DirecTV, 7.4% and Adelphia, 7.1%.

Net income for the fourth quarter was $11.4 million versus $3 million in fiscal year 2002, representing an increase of 274.7%. Net income for the year ended July 26th, decreased 27.9% to $17.1 million versus last year's $23.8 million. Fully diluted earnings for the quarter were 24 cents per share, a 300% increase from last year's 6 cents per share results. Diluted EPS for the year ended July 26th decreased 32.1% to 36 cents per share versus last year's 53 cents per share.

Operating margins for the 4th quarter increased 676 basis points, coming in at 10.25% versus last year's 3.49%. This increase was due to 179 basis point decrease in cost of earned revenues, a 247 basis point decrease in general administrative costs and a 250 basis point decrease in depreciation and amortization.

Operating margins for the year declined 182 basis points coming in at 4.23% versus last year's 6.05%. This decrease was due to 136 basis point increase in cost of earned revenues, a 36 basis point increase in general and administrative cost and a 10 basis point increase in depreciation and amortization. The affect of tax rates for the quarter in year end periods were 42.3% and 43.7% respectively, versus 47.4 and 43.2 respectively for the prior year's period. These differences were attributable to the mix of income among our subs and the impact that had on our state tax rate.

Net interest income for the quarter and year were $310,000 and $1.3 million respectively versus $509,000 and $2.6 million for the prior year. Our interest income is generated through investments in high quality municipal and corporate instruments. For the quarter our cash flow from operating activities was $13.8 million. The primary components of this cash flow were at net income of $11.4 million. Depreciation and amortization of $8.9 million, offset by increases in working capital of approximately $6.5 million.

Investing and financing activities for the quarter used $2.0 million. This use of cash consisted of capital expenditures of $5.1 million partially offset by proceeds from the sale of assets of $1.5 million and proceeds from the exercise of employee stock options of $1.6 million. Cash and cash equivalents at the end of the quarter were $129.9 million up $11.8 million from the prior quarter.

During the quarter, net receivables increased from $105.3 million to $122.0 million, but DSO declined 7.9 days to 60.7 versus 68.6 at the end of the third quarter. The net unbilled revenue balances increased in the quarter from $29.9 million to $34.1 million resulting in the DSO of 17.0 days, a decrease of 2.5 days from Q3's figure of 19.5 days.

On a cumulative basis the combined DSO for our trade receivables and unbilled revenues decreased from 88.1 days to 77.7 days, a decrease of 10.4 days. At July 26th the accrual for our self-insured casualty program increased to $25.4 million from $21.6 million at the end of the third quarter.

Steve?

Thanks, Dick. Now, Rita, we’ll open the call for questions.

Thank you. Ladies and gentlemen, if you would like to ask a question, please press star then one on your touch-tone phone. You will hear a tone indicating your line has been placed in queue. You may remove your line from queue at any time by pressing the pound key. Our first question is from the line of Steven Fox with Merrill Lynch. Please go ahead.

Hi. Good morning. First of all, can you talk about the SG&A, you said you still have opportunity there to reduce it and can you talk about how much you think you can improve that in dollars? And then, secondly, what is a reasonable gross margin target say over the next eight quarters or so?

In terms of the G&A, Steve, that's a dynamic situation as revenue moves between subsidiaries if it makes sense from a scale economy basis then we will consolidate them. I wouldn't say that we have an explicit target other than to always be more efficient in that area. The offset to that, of course, is as we see growth then to some degree we get the reduction based on the leverage on the relatively fixed expense like we did this quarter. By cutting G&A by, I guess it was, what, almost 300 basis points. You know, there is no amount of cutting that can could do that but growth can take care of that when you see some upturn.

In terms of where we would like to be on gross margins, Steve, I mean we have performed for a long period of time in a decent economy, in kind of a 24% to 25% gross margin range and that is the way we plan our businesses when we have good opportunities.

And then could you talk about, Steve, the backlog went down, what was behind that? And how do you anticipate your business with Comcast playing out now that it seems like you're over the big push over the next couple quarters with AT&T Broadband, is there a decline coming in the Comcast business or do you think these levels are sustainable say a year from now?

In terms of the backlog, as you will recall last quarter we booked a couple of significant contracts with Sprint that had in one case a 30-month term and in another case, a 33-month term and in another case, a series of five-year contracts and it is not unusual for backlog to bump up at that point and then to settle a little bit. I think historically we have seen that pattern.

In terms of Comcast, I mean clearly we have lots of upgrade work to do and I think by Comcast's own admission they feel like they are doing well and we are seeing that while there are less projects available there are still projects that they are assigning right now and so we see some of that work coming. And then I think what is going to be crucial for where our future trajectory with Comcast is taking a look at how they manage the combined entity differently than AT&T did and I think we're seeing some opportunities in terms of vendor consolidation and also access to portions of their O&M and other CapEx spending that historically we haven't seen a big piece of as we have been focused on upgrades. So I think if you look at any of the cable operators and look at their capital spending disclosures and their quarterly press releases, we are obviously targeting those areas that are flatter growing as we look out to next calendar year.

Thank you.

Our next question is from the line of [Fritz Von Carp], Sage Asset Management.

Good morning, gentlemen. A couple of questions. One, if I'm looking at the revenue guidance, you guys are traditionally pretty conservative with the guidance you give and I just wanted to get a feel for the slowing year-on-year comparisons implied by the revenue guidance. To what extent is that a product of you guys just being a little conservative in your guidance and to what extent is it a product of something of substance that you see out in the world?

Well, I mean I think we are always conservative on our second quarter because of the impact of the holidays and potential weather impacts which clearly got to us last year. I think in this particular case we are taking that conservative approach and we are also seeing an economy where we are seeing some fresh opportunities but there is not tremendous amounts of visibility compared to say, four or five years ago.

Okay. And back to the Comcast, help me understand what metric, when we talk to Comcast about their build out of the AT&T systems is it their fiber miles are expected to be -- I guess I have two questions. Is their fiber miles that they put in the ground are expected to be down they think 60% calendar '04 versus calendar '03, number one, would be, how much of that would be, because you're on the July year, how much of that 60% decline would be like in your, I guess '05, as opposed to the second half of the calendar year versus the first half of the calendar year? And also, is miles of fiber put in the ground, is that the right metric that would drive your business?

I don't necessarily think it is miles of fiber. Clearly they have stated pretty explicitly that they would like to get a substantial portion of their upgrade work done in '04 in the first half or two thirds of the year.

So that would be primarily, from that perspective more of an '05 issue on our calendar. I think the offset to that is that there's an increasing amount of focus from all the cable operators as their upgrade activity slows to focus more on the new build side of their business which is where they can gain basic subscriber growth and where they are intent on providing timely deployment so that they can combat satellite penetration, and I think that is recurring business that happens every year and I think that is where we're spending time with several operators focusing.

And one last question, if you don't mind. On fiber to the premise. Clearly it's potentially a lot of work, probably more than all the construction companies in America can do if it all happened in the fastest possible way, but do you have any -- I don't know if you are able to answer this or not, but do you have any insight into how the lawsuits to change or to challenge the new rule that essentially all the carriers have talked about, do you think that would have an impact on the capital plans of these, if the new UNEP rules were tied up in court for a year or two, does that make a difference or not make a difference?

I think ever since the '96 act was passed, Fritz, it has been litigated and I think the world looks tremendously different today than it did in '96 and so I think that the general approach that is embodied in the ruling changes the environment going forward. And may move somewhat in fits and starts short-term but I think long-term it is pretty clear from a public policy standpoint it is important that the Bells have incentive to invest in the residential broadband networks.

Okay, great. Thank you very much.

Thank you.

Steven Colbert, JMP Securities.

Yes, good morning, Steve.

Good morning.

I was interested in the business pickup with Adelphia, first of all. Can you give us some feel in terms of how the upgrade there is working in terms of the ability to fund projects going forward and how you are handling the receivables issue with them?

Okay. In terms of the funding, they have a debtor in possession funding facility set up, Steve, so they have more than adequate financing to prosecute their upgrades. And in terms of current accounts receivable; is that your question?

Yes.

Current accounts receivable, according to the Bankruptcy Code they have to pay within contract terms if they are operating under protection of Chapter 11, so they are paying quite nicely.

Okay. And any change in the reserve that you had in the past for the company's receivables?

No, we have not changed the Adelphia evaluation.

Okay. And let's see, I want to ask you also, in view of the power blackout on the East Coast, have you rethought at all any of your focus on utility's side of your business.

No, Steve, we really haven't. We're happy with the space that we serve and so no, we have not changed our focus.

Okay. And just the last question if I could. Can you share with us your thoughts on your capital budgeting for fiscal 2004?

We think that we can keep the fleet maintained and be able to grow the business spending $15 to $20 million a year. It is not a significant -- and we also, just based on natural attrition, will always have some disposal proceeds to off set the CapEx. In this particular quarter we offset about almost a third of our acquisition costs with disposals. So we feel that the fleet is in good shape and it will have ample internally generated cash to support CapEx.

What about D&A then for this year as well?

I think the guidance shows that it is relatively flat.

Okay. Okay. Thank you.

Alex Rygiel, Friedman, Billings.

Thank you very much. First, Steve, it looks like your backlog, that you expect over the next 12 months, is up about 15% year-over-year. Is that correct? Can you talk a little bit about the comfort that you have with the backlog versus maybe your comfort level with backlog in previous periods?

Alex, I don't have the figures in front of me. That sounds intuitively correct that backlog is up. I know total backlog in the year-ago quarter was $795 million so if overall backlog is up I'm sure the run rate next 12 months is. I think that as the economy gets better, backlog estimates get more solid. I think the other factor influencing backlog going forward is mechanical in the way that we calculate the value of our master contract backlog. I mean to be conservative we are always taking a 12-month look back and establishing our average monthly revenue times the remaining months on the contract. If we see a pickup, particularly with the telephone companies, in spending so that the month rolling into the calculation is bigger than the month rolling out, we will see backlog growing.

Great. And over the last couple of quarters you have mentioned competitive capacity may be constrained. Can you expand upon that a little bit right now?

We're continuing to see that private vendors of our services are still having some difficulties. Probably every week there are several that are exiting the business across the country. So, number one, there are less businesses out there. But those businesses that are there as private companies generally are bank financed. And the bank market, although a little bit better, hasn't materially strengthened and as anyone who knows who has gone to the local bank they are always looking backwards as to how they get repaid not forwards. And I think that is where the cash that we have on the balance sheet gives us both opportunities to address growth opportunities as we had with Comcast and Sprint in particular, and also allows us to address acquisition opportunities with less competition for those opportunities.

Great. One last question. Can you provide the revenue by business line?

Yeah. Dick has those right here.

Let's see. Alex. We had for this quarter, Telecom was 33.8% and cable TV 53.0%. Utility locating was 9% and electrical and other was 4.2%.

Those are all in percentages, Alex.

Right.

Great, thank you very much. Nice quarter, gentlemen.

Thank you.

Alan Matroni, Copper Beach.

Hi. Thanks. Seems like backlog typically comes down on the fourth quarter versus the third quarter, at least it has in the past over the last five years for most of the years. Is that a seasonality issue?

Sure. I think one of our peers talked about on their call that the March/April period always seems to be a peak time for new lettings, just the way the customers like to look at their capital budgets the first of the year start to bid cycle and so you have contracts that are generally renewed in the spring more than you do other times in the year. Okay. Also, can you give us, Dick, you ran through some of the customers, I appreciate that. It looks like Comcast I guess was down as a percent of revenues but up on a dollar basis and seems like you are getting the growth from elsewhere. Can you run through, I realize they're not top five but maybe give us what DirecTV and Charter were in the quarter?

DirecTV was 2.4%. You have Charter?

2.5%.

2.5% for Charter.

And I think the one that also picked up, Alan, was Alltel which was number 6 at 3.5%.

Okay. You really, it doesn't look like with this, I mean Adelphia has access to about a $1.5 billion dip financing and I guess they were your largest customer awhile ago. Can you give us maybe your expectations or what they are seeing in terms of spending? It seems like they could be a significant customer in the next 12 to 24 months.

We are seeing additional lettings with Adelphia and at the peak I think we were at about $30 million in the third quarter of 2002. I don't expect that we get to that level, Alan. In part, that was driven by design decisions that the current management is taking a little more conservative approach so they're upgrading all their plant but they're maybe doing it a little more efficiently, but we are seeing continued opportunities there to grow.

Okay. Also, Dick, you talked about the Adelphia receivables, so you still have $20 million reserved and you wrote it down to $20 million, right? There was no change in that?

That's correct, Alan.

Any change in the expectation of terms when you are going to collect?

No, other than I guess we are at three months closer to whenever it happens.

The forecast from management of Adelphia as I understand it, is kind of coming out fourth quarter of '04 and while we have not expressed any interest in selling the receivables at current trading levels, those trading levels, at least as represented to us, are higher today than they were three months ago. So somebody in the marketplace thinks that they are coming out sooner rather than later. Can you give us an update on the healthcare costs? I guess it seemed like a clean quarter, higher shares, lower other income and other issues. The healthcare costs, I guess at least on the balance sheet, accrued healthcare costs went up, can you talk about that a bit?

Well, basically, Alan, we were experiencing I think it seems to be fairly universal, healthcare costs seem to be escalating at a very rapid rate.

We have a deductible plan and what we saw in the spring through this quarter was that just raw claims increased our actual cost to administer the plan had been level but the claims costs have been up and we are addressing the relative contribution between the company and employees like me as to what we need to pay for those increased costs.

Okay. And then lastly, Steve, you talked about fiber to the home. I realize there is a lot of politics and legal issues involved but it seems like Telco spending has bottomed to some degree you're seeing a bit upticks in some of the RBOC's spending. What could it mean if in the past it had been about $1,000 they wanted to be able to supply fiber to the home, half of that being labor, can you give us a sense as to what kind of Greenfields you may see over the next 12 to 24 months regardless of the timing of the RFP in terms of small Greenfields that maybe you have been talking to the Bells about, if there is opportunity there?

We have done Greenfield subdivision placements of fiber going back to, I think when I was in the field did one of the first ones in the summer of 1995. What I think will change with the ruling is that they will more broadly apply the criteria where they will deploy fiber and the other issue, Alan, that is hard to get our arms around but we know directionally what it indicates is that there are substantial portions of America that are only served by copper so if you have a subdivision that is built two miles from the central office in order for them to do a Greenfield fiber deployment they are going to have to do some feeder fiber work and probably some electronics DLC replacements in order to serve those subdivisions. All the logic is, if the Bells start with Greenfield as they have indicated, ineluctably they are going to have to look at other areas because there are going to be routes along the way that make sense to deploy, particularly with this new ruling clarifying what happens when they replace copper.

Okay. And then you didn't speak at all about voice-over IP but I know you were doing a test for one of Comcast market. Can you talk about the opportunity there in the next 12 to 24 months?

I think all the cable operators have said that 2004 is the year where the trials get serious on voice-over IP and particularly now with Comcast, critical mass at 40% of America that when Comcast makes their mind up to add a service incrementally they will do a very good job doing it. I think we will see in the second half of calendar '04 and into '05 increasing deployments by the cable operators.

Great. Thank you.

If there are additional questions please press star then one now. One moment, please.

Well, Rita, if there be no further questions, we appreciate everybody's attendance on the call and we will speak to you again the Tuesday before Thanksgiving for our first quarter release. Thank you.

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