MasTec Inc (MTZ) 2003 Q2 法說會逐字稿

Please stand by, we're about to begin. Good day, everyone, welcome to the MasTec incorporated second quarter earnings release conference call. Today's call is being recorded. The following statement is made pursuant to the safe harbor for forward looking statements described in the Private Securities Litigation Reform Act of 1995. During the course of today's conference call, we may make certain statements that are forward looking, such as statements regarding MasTec's future results and plans and anticipated trends in the industries and economies in which MasTec operates. Additionally, the company may refer to certain non-GAAP measures, such as EBITDA, which are described discussed further and/or reconciled more fully in the press release as posted on MasTec's web site at www.mastec.com in the investor relations section. These forward-looking statements are based on MasTec's current expectations and are subject to a number of risks, uncertainties and assumptions including that our revenue may differ from that projected and by further slowdowns in our client's businesses or deterioration in our client's financial condition. That our reserves and allowances may be inadequate or the carrying value of our assets may be impaired, that the outcome of pending litigation may be adverse to us and that we may experience increased costs associated with realigning our business or may be unsuccessful in those efforts. Should one or more of these risks or uncertainties materialize, or should the under lying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in any forward-looking statements, made by the did that in this conference call. These and other risks, uncertainties and assumptions are detailed in documents filed by the company with the Securities and Exchange Commission. MasTec does not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances. I'd now like to turn the call over to Marc Lewis, MasTec's vice president of investor relations.

Good morning, I would like to welcome you to MasTec's second quarter 2003 conference call. With us today we have Austin Shanfelter, president and chief executive officer and Don Weinstein the executive vice president and Chief Financial Officer. The format of the call will be opening remarks by Austin filed by a financial summary by Don. Under the SEC guidelines and regulations, financial discussions are limited to GAAP based financial items and their derivatives. These discussions will be followed by a Q & A session that will last approximately 45 minutes.

Thank you, and good morning. Yesterday we reported a net income for the second quarter of 2003 was 6 cents a share. Our EPS performance was encouraging, particularly since our revenues were slightly impacted due to adverse weather in the Mid-Atlantic and Southeastern states. However, please note that we believe the revenues were only deferred and they will be replaced by the third and fourth quarter of this year. MasTec's performance is driven in part bite effects of our restructuring efforts in the fourth quarter of 2002 that continue to improve prove our margins and operating efficiencies. Our lower cost structure will continue to propel earnings as we move into the second half of '03 and into '04. Before Don discusses financial details of the quarter, I would like to spend a few minutes reviewing the general business activities in each of our service offerings. In telecom, each though we continue to see short term customer pressure on our capital expenditures, we noticed a slight increase throughout the markets. Our telecom com business continues to be predictable, within budget and maintains a high visibility of revenue stream. For example, in the second quarter, we cited existing agreements with BellSouth and Verizon from Florida to Virginia. As we are all aware, there has been a lot of talk and press coverage. By the deployment of this magnitude recently disclosed, were generally strong financially in our industry and we believe the course of direction and the timetable (inaudible) will be much easier to predict in the next 12 to 18 months. While the timing and costs are currently being debated, we do believe R box are serious about pushing the platform forward. MasTec will keep a watchful eye on all market share opportunities, particularly as less qualified and under capitalized competitors fail to meet customer expectations. Our approach to profitability by location and will pay off. In our broad brand division, our upgrade work for Comcast continues to ramp up. Some of our major markets such as south Florida and Salt Lake City, Utah are just now coming on line. We expect Comcast’s revenues to grow through the remainder of '03 and into '04. We're also seeing upgraded maintenance opportunities presenting themselves from both Adelphia and charters in '03 as well into '04. MasTec continues to expand its installed to the home model during the remainder of '03 in '04 we will expand this offering in the foreseeable future. The expansion will include both expanding new locations and existing locations. It is important to note that MasTec already conducts installation services in over 20 states and in Canada. Expansion should be expected from several of our customers in a variety of geographical areas. In our energy division, our energy service offering continues to maintain a predictable on budget and highly visible revenue stream, much like Telco (ph) model. In the second quarter, we have added customers like Pico Energy (ph) Central Virginia co-op and we've expanded our dominion service contract for three years. We've also extended our energy services for Power and light where Mastec has added service packages to its offering. We expanded these engineering services to other energy customers as well in the future. Additionally, we have seen gains in both substation and wind farm projects in the second quarter. These offerings are expected to expand within the coming quarters. Our intelligent tracker systems group has continued on its growth track. We are presently qualified in 26 states with 11 additional states currently in progress. MasTec has taken steps to be the top provider of the services throughout the U.S The second quarter was strong with IPS approximately $55 million of new awards in states such as Florida, Texas, Illinois, Virginia, South and North Carolina, and Georgia. We also start seeing new projects start up in the state of Nevada in the next few weeks. Mastac has been working on a number of government projects. They involve telephony and data applications. Homeland security projects for ports are coming out steadily and MasTec is well positioned to bid and receive some of these opportunities. In general, as we focus on our costs, we grow with our current customers, and we focus on our productivity. We will continue to strengthen and grow our business. Having just completed a 2.5 week, 28-month locations internal team meeting trip, I know our team has the capability, focus and commitment to deliver solid results for our investor and customers on a day day-to-day basis. I am now going to turn the call over to Don Weinstein and he will give you detailed financial summaries of the quarter just ended.

Thank you, Austin. Good morning to everyone. As many of you know, we implemented our restructuring plan, focusing on reducing costs and obtaining new revenue streams in the fourth quarter of 2002. In that effort, we made significant changes that we expect to increase our efficiency and profitability. Today we're happy to report that the benefit of those activities are now showing up in our bottom line. The financial performance improvement spurred primarily by the actions taken in the fourth quarter, continue to position the company for enhanced profitability and cash flow. While we did have some carry-over costs and additional headcount reductions in the effort in the first quarter, the associated costs were mostly behind us.

Looking to the detail. Our revenue was $209.1 million for the three months ended June 30th, 2003, compared to $213 million for the same period in 2002, representing a decrease of $3.9 million or 1.8%. This decrease was due to a reduction in capital expenditures by communication clients, our decision to reduce services to certain competitive carriers and the reduction and elimination of certain non-profitable service offerings. Our costs of revenue were $175.3 million or 83.8% of revenue for the three months ended June 30th, 2003. Compared to 183 million or 85.9% of revenue for the same period in 2002. The improvement in margin is a result of our restructuring plan. The plan resulted in the reduction or elimination of unprofitable work. We had aggressive cost cutting in certain contracts and new business opportunity. We continue to implement additional measures to streamline costs. Depreciation was 7.4 million or 3.5% of revenue for the three months ended June 30, 2003, compared to 8.3 million or 3.9% of revenue for the same period in 2002. We reduced depreciation expense in the three months ended June 30th, 2003, by reducing capital expenditures and excess equipment. Amortization of intangibles were .1 million or .1 % of revenue for the month ended June 30, 2003 and are relatively con assistants compared to .1 million for the same period nerve in 2002. In accordance with the change in accounting standards last year, good will is no longer amortize and no new intangibles were acquired. General administrative expense were 15.9 million or 7.6% of revenue for the 6 months ended June 30, 2003 compared to 19.3 mill question I don't know or 9% of revenue for the same period in 2002. The decrease is due in part to our restructuring plan. The plan resulted in the termination of employees, the consolidation of facilities and further office closures. We continue to implement additional measures as mentioned earlier to continue to further streamline our cost structure. Interest expense, net of interest income was 5.2 million or 2.5% of revenue for the three months ended June 30, 2003, compared to 4.3 million or 2% of revenue for the same period in 2002. MasTec incurred interest expense from long-term debt and periodic credit line borrowing to fund growth and to support our various letters of credit. For the 3 months ended June 30th, 2003, our effective tax rate was approximately 42.5%, compared to 40.9% in 2002. Cash was used in operations as we ramped up for growth in broadband, ITS and energy. However, as of June 30th, 2003, we had no outstanding draws under our $125 million credit facility. Growth liquidity improved during the quarter and is currently approximately 51 million dollars. We continue to be in compliance with the financial confident of our credit facility. On a quarter to date days base sis, DSOs were 91 days and 98 days at June 30th, 2003 and 2002 respectively. The decrease in DSOs related to principally the reduction in work, from a competitive local exchange carriers, and the exist exiting of certain non-core businesses as part of the restructuring in the fourth quarter of last year. For the quarter, some of our largest north American customers were in alphabetical order, BellSouth, Comcast, DirecTV, Dominion, SPL, Encore TXU, Progress Energy, QWest, USWest, Sprint and Verizon, followed closely by various state DOTs.

MasTec customer base continues to be diversified by region subsequent, client and type of service, and no one customer makes up more than 12% of sales during the quarter. Further evidence of customer diversity in the quarter, the top ten customers comprise less than 50% of total revenue. Finally, as we have talked about, MasTec continues to be a strong top-line performer, which we attribute to the strength and predictability of our master service agreement model. For the six months ended June 30th, our top 10 customers were as follows. We have four telecom customers, three energy customers, two broadband customers, and one DOT customer. So you can clearly see the diversity in the mix. During the last quarter, revenues by industry service offering were as follows. Telecom was 31% or 64.9 million. Energy was 22% or 46.2 million. Cable MSL, the broadband accounts were 26% or 53.5 million. Our ITS government business was 17% or 36.3 million, and our international, which continues to be a fairly small portion of our business, was only 4% or about $8 million. As part of our downsizing and restructuring, we have significantly reduced the size requirements for our corporate headquarters office. In July of this year, we sold our corporate office building in Miami and are moving to smaller and more efficient space. We'll be in our new space in a few months and we will notify all of you. Also close to quarter end we sold certain non-operational international foreign assets in the Ecuadorian and Venezuelan region.

Now, with respect to guidance for the balance of 2003, for the third quarter of 2003, MasTec expects revenue to be from 230 million to 245 million, with earnings per share between 11 cents and 13 cents. Now, as we talked about, the third quarter EPS estimate contains a 2 cent gain, net of closing cost on the sale of those non-operational assets I just referred too. looking forward to the entire year, we expect revenue ranging from $825 million to $870 million, and EPS ranging from 22 cents to 28 cents per share. Additionally, we projected EBITDA margin of 10% as we exit the year. Austin?

We would now like to open it up for questions, please.

Thank you, sir. The question question-and-answer session will be conducted electronically. If you would like to ask a question, please do so by pressing the star key, followed by the digit 1 on your touchtone telephone. If you are using a speaker phone, please make sure that your mute function is turned off to allow your signal to reach our equipment. Once again, it is star 1 if you do have a question and we'll pause for just a moment to give everyone the opportunity to signal for questions.

And our first question comes from Alex Rygiel of Friedman,Billings and Ramsey.

This is actually Min Cho (ph) sitting in for Alex. Congratulations on a good quarter. It looks like the telecom revenue was up 4% sequentially. I was wondering if you could talk about, what led to that increase. Even though it was minimal, was it an increase in customers? Customers in -- or a difference in the mix or type of work being performed. Any color there would be helpful. If you could talk about what percentage of revenue Comcast was this quarter, what you expect it to be by the end of this year. Also, if you could just give a backlog number and accounts receivable number as well.

Let me start off with telecom revenues. We were clear in the first quarter that we saw an abnormal decrease in telecom revenues due to weather. Some of that got better in the second quarter, but not substantially enough to even carry it forward. In my opening comments we discussed the issue that we believe the revenues are going to be deferred until third and fourth quarters. Also energy and broadband as well as our ITS customers as well. So we think it's the telecom revenue gains were partially due to not the severe weather in the second quarter as it was in the first, and secondly, we also talked about that we're seeing month to month slight increase in spending in general terms for our telecom customers. So the model is starting to fall in well.

The percentage of business for Comcast was about 11.7% in the second quarter.

Okay.

The backlog number remains about constant at about a billion-two, and accounts receivable in June 30, again, the number that we disclosed in our 10-Q includes accounts receivable, unbuild revenue and retain age, about 209 million or about $29 million increase, quarter over quarter.

Okay, and also, I'm assuming the guidance for 503 also includes a 2 cent gain, is that correct?

That's correct.

All right. That's it for me now.

Next we'll go to Bill Heffrin of Regiment Capital.

Can you talk about the cash flow a little bit more? It looks like just backing out first quarter, cash flow from operations was the negative 11.7 million. It looks like you did over 17 million EBITDA this quarter and had no coupon payments. That's a swing of $29 million. It seems high. Could you talk about that a little bit more?

Again, bill, as we talked about, the principal use of the cash flow from operations was working capital related. So as Min just asked, the growth in our accounts receivable balance was $29 million dollars. That has been the principal utilization of cash. One thing you have seen is that given the very strong ramp up in the second quarter for some hour broadband accounts, subsequent to the second quarter, we have had some fairly significant cash receipts, and it just ends up being a timing issue of when the work starts, when the work is billed and when we receive the cash. The principal utilization of cash in the second quarter was working capital related.

I didn't even catch that enough number. So all right, other than accounts receivable, everything else was sort of flat, or can you give that?

In the cash flow from operations line, that's essentially accurate.

Okay. Thanks.

Once again, it is star 1, if you do have a question or a comment. Next we'll go to Alan Metroni of Copper Beach Capital.

I missed the first five minutes of the call. Can you run through your top 5 or 10 customers and the percentages they were in the quarter as well as give us where they were either year over year?

We'll did have Don go over the top 10.

Okay, thank you.

What we do is we cover who our top customers were in alphabetical order, obviously Comcast being a large driver of MasTec. We're comfortable indicating that with 11.7% of revenue, but the balance of the customers in terms of our largest customers in alphabetical order in the second quarter, were as follows. And it's BellSouth, Comcast, which we talked about, DirecTV, Dominion, which is a power company, S P&L, encore, which is TXU, Progress Energy, USWest, Sprint, and Verizon.

Maybe I'm being a little crazy here. Any reason why you can't give us the percentages of the top 5 so we get a sense to be able to track when TELCO is picking up, or cable’s picking up or energy is coming down?

Would this might be something else you missed. Our Telco (ph) comprises 31% of our business. Energy comprise 22% of our business. Broadband comprised 26% of our business, ITS comprised 17% and international was 4%.

Okay. That's helpful. I'll talk to you guys off land on that. Where was CAPEX in the quarter?

CAPEX in the second quarter was 2.4 million.

What's your expectation for the year?

You know, comparing the fact that CAPEX in the first quarter was 2.4 million, you know, that's pretty much the run rate we're achieving at this time.

Okay. Can you talk about gross margins and maybe where you expect those to go? Can you talk about them specifically as it relates to Telco sector, broadband and the rest? Which one’s are you seeing increasing margins and better pricing power to some degree or better utilization versus other areas that may be drags.

As we talked about in the past on these calls, given the fact that there are differences in reporting among the group, we've focused on the EBITDA line because as we disclosed in our press release, the goal for MasTec is to have an EBITDA margin of 10% by year end. In terms of margin, the only guidance we've ever provided margin generally by service line is that our broadband business generally generates the highest margin, followed by tell could, followed by energy and ITS.

Can you give us a trend whether they are moving up or coming down a little bit? Here's my question. How do you expect to get to 10% questions by year end. Let me ask it that way.

We expect to be able to get there looking at incremental margin from the business unit. As you've seen, our SG&A have continued to decline. What we're doing is leveraging more of each and every dollar. So it's essentially a product of having more revenue against the same fixed cost structure.

Okay. That's helpful. Lastly, if I can, can you tell us what you're seeing from charter and Adelphia, the two weak sisters in the capital spending in the cable group. What's your outlook on them in the next 6 to 12 months.

Our out will this look on Adelphia, the courts have approved a $300 million spend on certain projects. We believe we're well positioned to get some of that work going forward. Some of it has come out in Florida and LA already. We continue to work on existing products we have with them on installation. So I would imagine that in the next three to four months, we'll definitely see continued opportunities coming from Adelphia. Charter, as they change over their operational structure, I believe it was within the next three months we'll definitely see some more activity and projects being launched for them in the -- by the end of this year.

Thank you.

And Chris Curiel has our next question.

Good morning. I want to clarify a couple of things. You said there is 51 million of liquidity. Is that cash and availability or volatility or how does that break down?

Basically we looked at availability on the revolver before any pullbacks within the revolver language plus cash. And just for clarity, while at the end of the quarter we had $4 million in cash, I believe it was Bill Heffrin asked about the working capital and the changes and having only $4 million in cash before the bond payment, my response, you know, pointed out that we have that cash collection. MasTec is sitting on about $8 million of cash, and that is after the bond payment and still no draws outstanding.

Okay, and so the --

You see an improvement in the third quarter of our cash position.

Right, right. And so there was about $47 million available on the revolver?

Again, on a growth availability under the revolver, yes.

I'm sorry, what do you mean by growth availability?

Within the revolver language, there are some holdbacks, and so without those holdbacks, you get to a growth level.

I see. I guess the CAPEX guidance you just gave is down from what I had been given $15 million earlier.

Correct.

It seems to be more on the order of $10 million now, and I guess what's the reason for that? Where are you cutting?

As we look at the capital expenditure, what you see is that we have continued to sell excess equipment, but we've also been very successful redeploying excess equipment. So as our lines of businesses have come back, we've been very successful and in moving equipment around. One of the core benefits of Mastec is that it's branded MasTec everywhere. All of our trucks say Mastec, all of them have the same DOT number. So one of the core benefits of MasTec is our ability to leverage that fixed cost infrastructure of the vehicle fleet and therefore, you know, as we've looked at the capital expenditure requirements for this year, again, we have had great success moving those assets around.

Okay, and my last question is, how do you see things in terms of I guess market share versus Quanta and Dicom (ph). The business that's available for your industry in general, but are you guys still getting your proportionate share? What are the competitive dynamics between you guys?

Let me go with this way with you. Our telecom sector, we have historical markets, but we continue to maintain that we don't feel pressure from the folks you have mentioned. We also are looking at and I made comments in my statement that we're looking at markets where less capable regional players or local players are involved. We believe there is opportunity for us to gain market shares in those markets. You don't see a lot of competition between the top three on the R box model. On the cable TV model, I think that MasTec and Dicom are positioned with Comcast and do what the customer asks us to do. The bottom line is we'll project further growth in the third and fourth and first quarter of '04, with that opportunity, so we'll see continued gain opportunity with MasTec's numbers on that issue. On the energy side, we here again, it's energy customers that we have. We concentrate mostly on the distribution piece of the business. So MasTec has been historically an east coast, southeast coast contractor with some holdings out in operations out in Texas, and we have not had a lot of competition in those areas. Those are contracts that are 35, 40 years in nature. We are starting to expand with our current customer bases, handling more of the work and expanding with new customers as I mentioned in my opening comment. As far as the IIPS business, Mastec stands alone in that marketplace. We have expanded tremendously aggressively over the last couple of years. We are currently getting qualified and trying to get qualified and in all 50 states as I mentioned in my opening comments. 26 have been completed. 11 are in progress. We will continue that process. I don't think that any of our competitors hold a candle to what MasTec does in that sector tore at this time.

Okay, thanks.

And next, we'll go to Brian Weisman of Fort Point capital.

Good morning. If I could flesh out a little bit more, since I am fairly new to the company. The accounts receivable being up $29 million, can you walk us through how you record -- when are they billed, recording time, how much it typically takes to collect kind of that receivable jumping so much?

Yeah, I think the focus around the growth and receivables really tends to be more top line related. When you have a material ramp up with a group of customers, not only are we dealing with the speed to get the build out as fast as possible, the customers are dealing with a large increase in the number of builds they are receiving. Some of it is just the customer and MasTec getting up to speed from a process standpoint and being able to process the increased work flow coming in, which is one of the things that increases it. But in terms of revenue recognition, you know, revenue recognition is called out in our 10-K, and we obviously follow the GAAP guidelines associated with revenue recorded and when we record revenue is when we record the associated receivable.

I think it's very important that everybody understands that we expect a significant cash generation in the third quarter. And I think that the ramp up from the first to second quarter was substantial enough that it definitely makes sense why we dipped into cash to take advantage of these opportunities that we're taking advantage of. And I believe that you'll see as of Don's comments a few minutes ago, we're seeing it in July. We continue to see the trend this in August, and so you can expect to see larger cash generation going forward.

When you should be -- what you should be encouraged by, Brian, is the quality of MasTec's customer base.

If I could just -- excuse me for interrupting you, Don, one quick clarification, then. So these are existing customers that new projects are ramping basically. What typically is the timing of the collection, 60, 90 days? Your DSO is up, but what's normal in these kind of projects?

It depends on industry. Government work takes longer to come in. Some of the -- it's frankly different by industry, but as you can see, the DSOs right now are a little bit higher than we would like them to be, and I think when you look at the long-term working capital requirement for MasTec, as you build your model, you should be in the mid-70s for DSOs.

Thank you.

And our next question is from Gerald Ginsberg of Bank of America.

Hi, Clarification on dip in revenue for the quarter. If I understood correctly, first comment was that they were impacted by adverse weather and revenue would be deferred and replaced, following later in the year, and then following that, it said the decrease was due to bringing down CAPEX on the communications side, reducing services to competitive carriers, and the reduction or elimination of certain offerings. Could you flesh that out a little bit more.

With let me take the weather piece, first. Just so we're on the record with more details. The first half of '03, this year, the record levels of rain, 31 to 32 inches in West Virginia, Virginia, Delaware, North Carolina, South Carolina, and Georgia. Way above normal rain precipitation in 22 inches to 37 inches in Kentucky, Tennessee, Alabama, Louisiana, Florida and Pennsylvania. If you look at MasTec's footprint, those are locations that we cover with a lot of expensive personnel. These are historic levels. However, we were able to really core down into the ability in the second quarter to work around that as much. Those people worked on Saturdays and Sundays, and making sure that we got our customer caught up. The work doesn't go away. They still need to get these projects done and completed and that's why we have confidence in the third and fourth quarter these revenues are coming back in the model.

So the initial comment then on weather was not related to Q2, but related to Q1?

No, it's related to the first half of this year and part of that was in Q2.

Okay. So then the --

The other big driver that you asked about --

Yeah.

As you may recall, or you may have read in our public filing, at the end of last year, as part of our restructuring effort, we had approximately $77 million of operations, so over $838 million of revenue reported in 2002, approximately 77 was not going to be recovering, given the fact that we shut, sold, terminated, certain lines of business. And when you look at the effect in the second quarter of that $77 million, you know, what you would actually see is an increase in revenue year over year by simply removing that. To feel comfortable, though, you should feel good about the, you know, almost $30 million sequential increase in revenue from the first quarter to the second quarter.

I don't feel uncomfortable. I was trying to get clarity on the numbers there. Okay, thank you very much.

And Dave Kang of Roth capital has the next question.

Thank you. First question is, regarding your revenue guidance, so you are expecting about 10 to 70% increase. Do you expect telecom revenues to increase within the same range. And the second question, I was hoping to get some more color in terms of a fiber to the home or fiber to the premise roll out in terms of timeframe and the scale of the rollout, thank you.

I think when you look at the revenue for the balance of the year, and the year end total, you know, our original guidance for the year was telecom would be flat or slightly down in revenue and you would see growth from our other groups. Obviously, the largest growth area being broadband. And so when you look toward the end of the year in terms of a revenue mix, you know, having 30% Telco, 30% broadband, 20% the rest of the pieces of the business, plus or minus a few percent, that's where the growth trajectories are taking us.

As far as fiber to the home, I think it's important -- I don't go by a day without reading an article on the issue whether it be from the vendor side or the R box side of it. One of the things that's interesting for MasTec, we were able to do a couple years back one of the first fiber in the home deployments in the nation. That was what the project called Ifil for BellSouth. We accomplished in this in the Atlanta and Miami markets. We have the expertise and capacity to build those models up very quickly. As we listen to companies like Verizon with Bruce Gordon stating that this is not a trial, it's a deployment, and we really believe the fact that if one of the r-boxes does start the process and the regulatory issues get solved, they'll all follow suit. Talking with companies like Alcatel, Sscientific Atlantic, Lucent, Nortel, Marconi, Siemens the equipment people, they are definitely in discussions, deep discussion was the Rbox and believe this thing to be very true. In our opening dialogue, I said that we're going to be very comfortable with the information in the next 12 to 18 months. It may come sooner but at that point it's going to become crystal clear what's happening. The rollout. I think our positions with the long-term agreements that we have in multiple markets, really puts MasTec in a wonderful position. Definitely those markets if not adjacent markets to offer the services and to be able to do these types of projects. If they are successful. And I think that the other I observed indication that you need to pay attention to quite a bit is the trouble that the RBOXs have had rolling out their DSL product. They continue to lag. They continue to come up with issues why they can't get their deployment out, and I think that it's our position is that not a lot of money and CAPEX has gone into the networks, thus creating shortfalls to roll out the product. The bottom line is to be competitive, they need to do this, and I think MasTec will keep its eyes and ears and minds open to the opportunities and international it's well situated to handle them at a minute's notice.

Thank you.

And as a final reminder, it is star 1 if you do have a question. And David Marsh of Friedman, Billings, Ramsey has the next question.

I'm sorry, my question has been answered. Thank you.

And moving on, we'll take our next question from Adam Scotch of Kraemer Rosenthal.

Just a couple of questions. First one is, can you just outline what the current debt covenants are in terms of the primary coverage ratios, I guess, and the second question is, you had mentioned that you had been successful in sort of offloading some under utilized equipment. Is there any element from an accounting standpoint of gains on sale that you've been realizing or did you actually take a loss on that or --

Adam, good morning.

Good morning.

In terms of the debt covenants and our credit facility, there are two financial covenants. One is a tangible net worth covenant and one is a fixed charge covenant. We're clearly within covenant compliance, the tangible net worth covenant is set at $168 million and our actual is about $180 million, and the fixed charge test is about $1.25, although as you can read in our public filings at 1.25 does increase a bit through the rest of the year. And our current fixed charge coverage is 2.7. So we are comfortable within our compliance obligation.

Will you guys benefit from -- since you are so far above that, will you benefit from any kind of interest cost reduction is there anything involved with that?

No, there is not. In terms of your second question, in terms of sales of equipment, in the second quarter, when you look at the other expense on our financial at the same time, that approximately $600,000, that actually relates to losses on sales of equipment.

Okay.

The second quarter, we had cash flow from the sale of equipment of about $4.1 million, but that did generate about $600,000, so we had about a penny of loss in the second quarter. Now, we had a little less than that in terms of a gain in the first quarter, so for the year, we're about even on the sale of equipment, and as we continue to sell equipment through the rest of the year, we expect to continue to be about even.

Okay, great. And just one final question, since you guys are expecting such a nice revenue ramp in Q3, and short of giving the DSO formula, is it safe to assume that a lot of the revenue that's going to be billed in this quarter is going to be done early in the quarter given that you said that cash flow from operations should be significantly positive?

What you will see is you are going to expect, given the continued growth with some of our larger customers, is that the revenue is not going to peak in the month of July. We'll continue to have strong revenue in each of the months of the three quarters or three months of the third quarter. The focus around the improvement and cash is really more of a reflection of things just becoming a little bit more settled in the overall profits with our larger customers and the growth we've experienced and that lead to the incremental generation of cash as I referred to earlier today, we have more cash on the balance sheet than we did at the end of the quarter, and that's considering the fact that we also had almost an $8 million interest expense payment on our bonds at the beginning of august.

Okay, great.

And our final question is a follow-up from Alan Metroni of copper beach capital.

I was wondering how you were going have revenues up 10-17% and have DSOs go down but that was handled. Second question, can you give us Comcast's, the percent of business to Comcast and what it was in the first quarter of this year and maybe what it was last year in this quarter?

In the first quarter of this year, Comcast was a little under 7%, and in --

Maybe it's more important fourth quarter last year, if you have it.

In the fourth quarter of '02, Comcast was not one of our 10 largest accounts.

Okay, so that means it was under 5% probably?

It was under 2%.

Under 2%, okay. Is there any indication that you are seeing from come cam that they are going to spend the way you thought? You originally thought, I think, as you said before that it was going to strengthen throughout the year and hit its peak in the fourth quarter and be a steady run rate into next year. Any reason to change that or are they doing what they say they are going to do?

They are doing a fantastic job of getting their system built, there is no reason to change our previous guidance to you on that issue.

Can you give us color in terms of which cities you are working on in Comcast?

We continue to work in the Chicago market, San Francisco market, Denver market, the South end Indiana market, the Florida market, there is two of them Jacksonville and Miami, which is just getting started up. We're starting design in Salt Lake City, and we'll continue that project and looking to build those and also the Baltimore and Atlanta markets.

Thank you very much.

And that concludes the question-and-answer session today at this time, Mr. Shanfelter I'll turn the conference back over to you for any additional or closing remarks.

Thank you folks for joining the call. As you can see, we're definitely focused on continued improvements in our business and focused on getting better results month after month and quarter after quarter. You can believe that the focus is here, that the attention to cost reductions will stay in place, and we expect to have further great calls and results in the next month to come. Thank you so much.

That concludes today's conference. We thank you for your participation. You may now disconnect.