MasTec Inc (MTZ) 2005 Q3 法說會逐字稿

Good day everyone and welcome to MasTec's November 8th third quarter 2005 earnings conference call. Let me remind participants that today's call is being recorded.

At this time I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Good morning. Welcome to MasTec's third quarter earnings conference call. With us today are Austin Shanfelter, MasTec's President and CEO, and Bob Campbell, Executive Vice President and Chief Financial Officer. The format of the call will be opening remarks by Austin, followed by a few comments from Bob. Financial discussions will be limited to GAAP based financial items and their derivatives. These discussions will be followed by a question and answer period and we expect the call to last approximately 45 minutes.

The following statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Security Litigation Reform Act of 1995. In these communications we may make certain statements that are forward-looking such as statements regarding MasTec's future results and plans, anticipated trends in the industry and economies in which MasTec operates. These forward-looking statements are the Company's expectations on the date of initial broadcast of this conference call and the Company will make no effort to update these expectations based on subsequent events or knowledge.

These forward-looking statements are also subject to a number of risks, uncertainties and assumptions including that our revenue may differ from that projected that we may be further impacted by slowdowns, postponements or cancellations in our customer's businesses or deterioration in our customer's financial condition. That our targeted service markets may not expand as we anticipate and our reserves and allowances may be inadequate or to a carrying value of our assets may be impaired in the outcome of pending litigation may be adverse to us. Should one or more of these risks or uncertainties materialize, or should unrelying assumptions prove incorrect actual results may differ significantly from results expressed or implied in the forward-looking statements made by the Company in these communications. These and other risks, uncertainties and assumptions are detailed in documents filed by the Company with the SEC. MasTec does not undertake any obligation to revise these forward-looking statements to reflect future events or circumstances.

At this time I'd like to turn the call over to Austin.

Thank you, Marc, and good morning. As we completed the third quarter we are encouraged that our focus on margin improvements is paying off. We will continue to fully embrace the profitable opportunities that continue to accelerate within our core customer base. Driven by competition and customer demand for our more robust video, voice and data offering, we believe that our major customers will continue expanding and upgrading their networks along with increasing our CapEx budgets for 2006 and forward. MasTec is well positioned to take full advantage of our diversified customer base's needs.

Our service expertise and capacity are critical to our customers. This is highlighted recently by the tropical storms and hurricanes that pounded the Gulf Coast and south Florida. We have served these geographic regions for decades and MasTec will continue to help its customers restore their networks in the weeks and months ahead. These storms caused widespread damage to many of the cities and towns in our service areas. Whether it's placing new utility poles, restoring power, or helping our voice video data clients repair and reactivate their systems, MasTec has been heavily involved at ground zero in these efforts.

Our team members, many who live in these storm areas, were personally affected, yet worked tirelessly to restore the power, basic communications and traffic systems to their communities. We and our customers appreciate their dedication, professionalism and extraordinary efforts during this period of time.

It is important to note that when a major storm hits the initial work is focused on restoration of electrical, power, and cleanup efforts. Until this process is well underway some of our normal work is put on temporary hold. As a result the initial -- initial weeks impact slightly negative on revenues and on overall profits. However, MasTec subsequently gets a boost in productivity, revenues and margins as workers are utilized more efficiently on restoration and normal customer maintenance work returns to full strength. During the last quarter our management and field team members stepped up to the line and met a number of challenges set forth by the Company. We were there for our customers for storm restoration in very difficult circumstances. We added value to the business plan as division increase in operating margin performance. We continued to execute on profitable growth opportunities and we continue to harvest opportunities to execute and expand our corporate performance goals.

As we have stated in the past, we will continue to be more focused on profitable revenues with our core customers. In the quarter we generated strong core business performance even before storm restoration work. Maintenance and upgrade work is expanding, and additionally, the trend in outsourcing continues to be, continues at a very good pace. With MasTec's footprint, capabilities and reputation we are well poised to take advantage of these opportunities. The recent profitable growth in communication, utilities and installment loan revenues fits the mold.

I would now like to turn the call over to Bob so he can fill in the financial details for the quarter. Bob?

Thank you Austin and good morning. Before I go through the details of our Q3 financials let me first mention a few items that I would like to highlight today.

First, total diluted net income was $0.15 a share versus $0.09 last year. Net income was up 83%. Second, we continue to have strong revenue increases in fiber to the premise work and in the install to the home services. In addition, demand overall for our services is good and demand, including storm work, is of course very good. Third, gross profit percent improved to almost 15%. One of the best quarters this decade. Fourth, we expect to be profitable for both the fourth quarter and for the full year of 2005. Fifth, we continue to improve our financial reporting capabilities and issue our financials on a more timely basis. Please note that we filed yesterday's 10-Q three days earlier than last quarter despite hurricane Wilma. And finally, we continue to monitor the capital markets and we will attempt to access them under the right circumstances. We have been saying this all year.

Now lets review the details of the quarter. Third quarter revenue was down slightly, down 1% versus last year. At a high level, we had a $24 million decrease in Comcast work as a result of finishing their upgrade project in 2005, and we have consciously downsized our DOT traffic projects to allow us to fix them. These revenue decreases were replaced by 2 growing customers. We had a $17 million increase in install to the home work, and a $10 million increase in fiber to the premises work for a major RBOC customer. Although we now have lots of Hurricane Katrina, Rita and Wilma work, we actually had less storm work in Q3 '05 than we had in Q3 a year ago from the four Florida hurricanes. I'll talk a little later about the outlook for Q4, but our Q4 storm work will certainly be higher than last year.

Q3 net income was $7.7 million or $0.15 total diluted earnings per share versus 4.2 million or $0.09 last year. Q3 gross margin percent was 14.9% versus 12% last year. This is one of our highest quarterly gross margin percentages this decade. I'm referring to gross margin before depreciation. The margin improvement was primarily due to improvements in labor and subcontractor productivity. The improvement would have been even greater, but the quarter was negatively impacted by two items.

First, we are still working off some badly bid jobs in our DOT traffic business, and second, increased fuel costs impacted us by a full percentage point. As a frame of reference, our Q3 gross margin percent was negatively impacted by about 2 percentage points by our DOT traffic business. However, the impact was less in Q3 than earlier this year. As we have said in the past, improving margins is our highest priority at MasTec. While there is much more room for improvement we are, of course, encouraged by the Q3 gross margin.

Q3 G&A costs as a percentage of revenue were 7.6% compared to 6.9% for Q3 a year ago. Q3 was impacted by an increase in bad debt expense of $600,000, and by higher payroll and bonus costs. Part of the payroll cost increase was for upgrading -- was for the upgrading of the finance and accounting function around the Company, and part relates to some additions we have made to beef up our executive group. Q3 interest expense was about flat with last year. Q3 other income was zero compared to 800,000 in Q3 last year. Last year was mostly vehicle gains and this year's vehicle gains were offset by some asset impairment write downs.

For the third quarter our 10 largest customers were DIRECTV 28% of the revenue, Verizon 8%, as a point of information, Verizon was our 5th largest customer the same quarter a year ago. Bell South 7%, Sprint 5%, Florida Power and Light 4%. Progress Energy 3%, Avaya 3%, Encore TXU 2%, Qwest US One 1% and Florida DOT 1%. We continue to be proud of the quality of our current customer base and we are appreciative of the many years of support that our customers have given us.

Today backlog is roughly at the $1.1 billion level. At September 30th MasTec had gross liquidity of $51 million compared to $20 million a year ago. Liquidity all year long has been better this year than last year, due to improvements in earnings and as a result of the new senior credit facility we put in place in May. We define liquidity as bank cash plus availability on the revolver.

Our Q3 accounts receivable days sales outstanding, or DSO, was 86 days compared to 85 days a year ago. We are not at all happy with our current DSO levels. While DSO's increased a little in September due to unpaid storm work we strongly believe that we can do much better than this over the long term. Short term, slow paid storm work just is not going to help DSO's. Longer term, we expect to see improved DSO's from three areas. First, from selling better contractual payment terms. And second from a shift in customer mix. And third from just more senior management attention to collections.

We believe that our financial reporting capabilities and our financial controls continue to improve. Please note that we filed yesterday's 10-Q three days earlier than last quarter despite hurricane Wilma. By the way, our disaster recovery plans worked. Our systems stayed up and we processed payroll last week out of Dallas instead of Miami. As we have said all year we are monitoring the capital markets and we will attempt to access them if the opportunity presents itself. We believe that significant profitable growth opportunities exist for the Company and we want to be financially well prepared to capitalize on them. In addition, we believe that some deleveraging of the balance sheet would be good for MasTec and good for our shareholders.

Finally, I'd like to address fourth quarter guidance. We expect revenue to be between $220 and $230 million, and EPS to be in the $0.07 to $0.10 range. The fourth quarter this year is a little more challenging than normal to forecast because of Gulf states and Florida storm work. Our guidance assumes stability in each of our operations, reasonable levels of fiber deployments, favorable weather conditions and an economy that remains stable.

At this point let's go back to Austin.

Thanks Bob. The continuing opportunities revolve our core customers. Competition is driving spending with Triple Play, convergence of voice video data and services. Our customers are budgeting more long term project upgrades, fiber deployments and restoration projects to meet the growing demand. Recent SEC and local franchising decisions and recent highway and energy bills have created CapEx incentives for some of our customers. In short, MasTec platform has positioned us to expand our offering and deliver bottom line performance to our investors. It's back to basics for the Company and we're clearly focused on improving margins.

In order to insure that we have enough time for the Q&A session I'll now turn the call back over to the operator and we will devote the remaining time of this call to the listeners questions.

Thank you. [OPERATOR INSTRUCTIONS] We will go first to Vik Grover with Thomas Weisel Partners.

Congratulations. I want to clarify something that you guys said, did I hear correctly that DOT projects adversely impacted gross margins by 2% and fuel is 1%?

That's correct.

So I guess the next question logically is, when should we expect the DOT side of the business to kind of flush through and get to a level of profitability that will let margins come back to a more normalized level?

We expect that the most of the work has been done this year and for the most part completed by the end of this year. There may be some carryover in the first quarter, but that would be about the length of it.

Okay. Then one last question, if I may. In terms of hurricane rebuild, it seems like there's such a massive opportunity, can you give us a little insight into where the near term opportunities are and maybe the scope of it? It seems like this could be much more than just a fourth quarter situation in terms of devastation to the south.

I think first of all, when you look at these hurricanes that have happened this year, and especially if the ones in the Gulf coast, you have to look at them as catastrophes, not just normal hurricanes. Last year Florida went through four hurricanes, but nowhere near had the devastation that the last two hurricanes have had on the Florida area and also the Gulf coast. So, what'll happen is that we're starting to assess that impact with our customers literally on a daily basis right now. In Bob comments, he mentioned that the piece that we're uncertain about for guidance and length of time is about the storm damage for revenues and profits related at work.

But from a perspective is here we are some week and a half later after storms we still do not have all the power restored, the cable customers still aren't all on, the DIRECTV customers still are not on, telephone is still working the rehab, and it will be some weeks and months before everything normalizes. In my comments earlier I made, while you're working on rehab you're not working on normal course of work. So that kind of back up and push towards later period of time. So I got a feeling that activities in the first quarter are going to be very robust compared to historically levels that we've had in the past.

So I do think that you've got long-term work ahead. We service Florida markets quite well and we also service the panhandle and the Gulf coast states very well. For example, having the BellSouth master in New Orleans we expect the work to be coming our way quite heavily for the next months to come. How many, Vik, I just am not absolutely certain, but it's not a two week to three week fix.

All right, thanks a lot.

Next question.

We'll go next to John Rogers with D.A. Davidson.

Hi, good morning.

Hi John.

I apologize Bob, when you went through the top customers I couldn't write quickly enough, the second five.

Sure, one second.

Thanks.

Florida Power and Light was 5th at 4%, Progress Energy 3%, Avaya 3%, Encore TXU 2%, Qwest US West 1%, and Florida DOT 1%, that should be 10.

Great thanks. Then the other question I had though is, if I look at some of these numbers, specifically the Verizon and Bell South and the last mile fiber work, it appears that it's down sequentially from the levels we've seen over the last couple of quarters. Would you comment on that or what you're hearing in that market or is that storm disruptions?

Yes, absolutely, John. Let me go over a couple different items. First of all, I think what the storms did interrupt some of the progress, and thankfully we had caught up on a lot of projects that we were going to do in the third quarter to allows us to move people down to help us in the storm recovery efforts. While we are seeing some substantial decline, when you look at BellSouth absolutely from the storm damage, if you look in the area where they were affected and how many states were affected, I think we saw some decline in that over the month of September. The storms hit on the 25th of August in Florida and on the 30th of August in the Gulf states. We definitely saw some decline of revenue opportunity in that market. As for Verizon, I think we really went out and we accomplished the goals and objectives that we were shooting for for numbers this year and we've gotten to a flat plateau right now for the rest of this year. However, on October 27th, their call with investors, they reaffirmed they will be doing 3 million homes in '06, which they did 2 million in '05, so, we believe that level will pick back up for us in Q1, Q2, Q3 of next year and it'll continue to be a robust opportunity for us.

Okay, great. Austin, for clarity, how much of your work is in -- as a percentage of revenue is in Florida and the Gulf region?

We don't, I think we've got it, we don't have a number right now for that. As soon as we do we will announce that publicly to everybody, but it's a large percent of our work. I haven't done the numbers in this calculation yet, I don't think -- Bob, I don't think we have it do we?

No, we publicly have said that the southeast is 65% of the revenue.

Right.

We will provide that number.

Okay, great, thanks guys.

We'll go next to Eric Kainer with Needham.

Thank you very much. Nice quarter guys. I like to focus on the bottom line, apparently you guys do too.

Yes, we do.

I wonder if you can talk a little bit about the 600 K bad debt expense, and whether those are part of the customers that you've kind of upgraded away from or what have you or whether we should expect some level of that going forward? And then I would like to have you chat a little bit about, what you're seeing as far as RFP activity out of the nonVerizon RBOCs?

I'll let Bob will answer first for the bad debt and I'll take the RFP of the nonVerizon.

First of all, our process is what you would expect it to be, it's a thorough review of all the receivables, collectability, any issues with particular customers, and we go through the same process every single quarter. And, if you go back and look over the last year or two, we have had charges that range from a low of about 1 million to a high of almost 2 million. So there was nothing unusual or extraordinary about this quarter other than our review, which is really receivable by receivable, plus looking at the reserve in total.

Now, relative to 2, 3 and 4 years ago, we've certainly worked our way out of the -- more the project construction less credit worthy customers in the CLECs. And if you remember looking at our numbers historically we had some huge write-offs. But today we're having, what I would call just a normal review and a normal level of bad debt expense.

As for the RFPs and the nonVerizon RBOCs, without saying exactly which RBOC, because we have to be so cautious that our agreements are with our customers that we don't disclose what's taking place precisely, but the other RBOCs other than Verizon are absolutely out there. We're seeing activity, both on the outside plant construction and the installation, installation opportunities that they may have going forward to install to the home. So there is activity. It became more robust in the third quarter. We expect more follow up in the fourth quarter and actual work to start kicking in some time next year.

Okay, great. And then one last thing, I'm not sure how much you can comment on this, but, obviously on the DIRECTV quarterly announcement, they talked about having new products available, specifically the new DVR and such, and high DEF products, MPEG IV products etc., to what degree do you see this as a spur, not necessarily maybe this coming quarter, but through 2006?

Well, understand that any new initiative they have, whether it be equipment or a new product line in the states that MasTec serves, it will be the work force that installs that product. So, therefore that would be work that's above and beyond the normal duty of maintenance and service and install work that we do. So depending how large of a take rate they have, and the full buy that they have buying on the product line it will affect MasTec for a period of time. It's not something that's a quarter, really, in fact, it's probably going to be multiple quarters and we'll be there to service our customer to make sure they get that work done.

Thank you very much and congratulations.

Thank you.

We will go next to Todd Mitchell Kaufman Brothers.

Good morning. I too will congratulate you on a great quarter. Most of my questions have been asked, but a couple quick ones. In terms of the DTV business, can you sort of quantify how much of that might be incremental because dishes were blown off of houses?

I think it's very important to understand that in the third quarter we had less revenue on hurricane damage in the third quarter than we did in '04. And so we didn't experience a lot of work in Q3 related to hurricanes. I don't believe that's what you're going to see in Q4, but Q3 we didn't have much of an impact from dish problems.

That includes your direct to home business as well?

Yes.

Okay. The other question I have for you is looking into the fourth quarter do you expect to be doing any incremental work for say either Comcast in Florida or Cox in New Orleans or any other MSO for repair work?

I think there's opportunities for some of the MSOs. We are doing some work in the Gulf states for some MSOs in that region, I do believe there will be additional opportunities to do work in that region in the next couple months to come. It's very important to realize up there in the Gulf region power is still methodically being installed, pole lines were just totally wiped out, that it's been a very slow process on telecommunications, on cable, which is usually the last piece to get put up to the poles. And so it's an ongoing effort. But we absolutely had some impact at the very end of September, and we will have impact in the fourth quarter of cable opportunities in more of the Gulf states than we will in Florida.

And your sense is that some of those systems were hit fairly hard?

I think so, those systems have catastrophes.

Okay. And last question, you've mentioned in terms of going back to what Vik was talking about the gross margins, if you come in at 14.5% with 2% caught by the DOTs and 1% on the fuel cost, you stated the upside to improved labor and sub con driver productivity, is there more to come from that component or should we think of, you know, Xing out the DOT and fuel cost and that sort of gets you to what a decent gross margin, I mean, albeit it is decent compared to what you've been reporting recently or do you see more improvements in the core business?

Todd, I think it's important to make sure everybody understands on the call that we're not exuberant about our performance. This is what we're setting out to do. We're going to continue to improve margins, we're going to continue to get back to historic levels, and I think there's a lot of places we can do better and people are stepping up to that challenge. So I think that, this is just one of the steps in a series of multiple steps we're going to be taking to continue to improve our margins. Yes, we'll have to look at the cost of fuel, that's slowly coming back down a little bit, but it's still $2.80, $2.70 a gallon. We'll have to address that with our customers, we'll have to address that with our team members on how to better manage that issue. But we're looking for across the board improvements and enhancements to margins going forward.

Okay. And just a quick follow up on that. Just qualitatively, if you look out over the next quarter and you're going to be having a lot of repair work and a lot of that comes under the master service arrangements, is the dynamic such that you have excess demand and so there's pricing and the opportunity for margin improvements just in that macro environment? Or is it such that a lot of these agreements are cost plus on this sort of work, so, really the margin is locked in on that incremental business?

I think what we find is the productivity goes up on these repairs. People work longer hours, we are a lot more productive because it needs to happen to get people back to normalized life, so, there's a sense of urgency that's on our workers and on our people to literally help the communities they come from and they live in to produce more. So we find that we have higher production rates during these storms. Many of the price structures are predetermined a year in advance and are established a year in advance for this type of storm work. So, some of it's bid and some of it's priced at the time, but most of it's already preset.

Great, thank you very much, and again, congratulations.

Thank you, Todd. We'll go next to Min Cho with Friedman, Billings, Ramsey.

Good morning. Austin, a couple of questions for you. First of all, do you have a breakout of communications as a percentage of revenue between telecom and cable?

No, we don't. We talked about in our filings is communications is 62.8%, and that's, it's all telecom -- it's all voice, video and data. Our utility business is 21.6%, and our government business, which is a combination of bases, the ILEC work and the RUS, REA type of customers and the DOT traffic business is about 15.6%

So, you're not going to break out telecom and cable outgoing forward?

We haven't. We look at that whole space as voice, video and data any more, and it's -- the convergence of it is really difficult for us to break out.

Okay. In terms of Verizon, did you start in any new markets this quarter or were you awarded any new markets?

We continue to service the same markets we had last quarter

And work in New York has started? I remember you'd mentioned that was a new one in the last quarter.

Yes, we're started up there. The question for us is going to be in New York during now this time of year, how much longer til we go? It's been very wet up there the last probably two weeks, but the question is when do the snow and frost move in? That had been a little bit of a work problem, so far so good.

Okay. As a response to one of the questions you had mentioned that Verizon was kind of plateauing and you expected it to plateau in the fourth quarter as well. Do you mean that for fourth quarter Verizon should be flat with 3Q or should it be down based on seasonality?

We are -- our present plans are we're still going to do about the same amount in Q4 as we did Q3.

Okay. Can you tell us, first of all, the 1.1 billion in backlog, that's a 12 month number?

It's an 18 month number.

18 month. Can you tell us how much of Verizon is assumed in that number?

First of all, no. But, I can quote that it's very little, because we've talked about it publicly a little bit because of the way work comes out to us.

Okay, so, very little. All right. And also, just one last question, can you tell us how much revenue did come from the hurricanes this quarter?

I think we have a $10 million for this quarter, a year ago it was about 13.

Great, thank you.

Thank you.

We'll go next to David Lieberman with South Point Capital.

Hey guys, congratulations. I just had a quick question, what do you guys think on SG&A going forward on a quarterly basis? It seemed to jump up a little bit this quarter, is this more in line with what you're thinking, or should I look at the first two quarters?

It's not what we want, I can assure you of that, but keep in mind, and I think I mentioned there's 600,000 of incremental bad debt expense hitting SG&A this quarter. But you also have the impact of some of the adds we made, mostly in finance and accounting, and then to a smaller degree beefing up some of the operations group. We continue to work on SG&A. We think it can and should go lower. How much we can accomplish, we'll see, but we are, we're leaving this call to a meeting on that.

Okay. And then, Austin, you mentioned on the DOT you expect your work on that to be done maybe see a little residual of that in Q1. Are you implying, meaning is your work done to sort of end the contracts and not sign more contracts and we may see some negative gross margin effect continuation in 2?

No, I'm glad you asked that question I want to get this cleared up. We are now bidding work and continuing to try to move the business forward, but we have incredible discipline to what margins we need to accomplish in that work going forward. What we're talking about right now is the poorly bid projects from a year and a half ago, two years ago, that we're just bringing to completion, should be completed by the end of this year. A few of those projects may have some carryover to the very beginning of next year, but we're going to be back in that business in the sense of unprofitable work that we have bid in the last nine months to a year. And so we'll have a business that we can really predict much better and have a lot better results with.

Great. So if we break out the DOT, theoretically, in '06 we should be seeing at least a break even business.

One could say that.

Okay. And then, just lastly, what was your number on backlog again?

1.1 billion.

Okay. Great, thank you very much guys.

Once again that's star one to signal with question or comment. We go next to Bill [Hecklom] with Regiment Capital .

Just a couple of work capital questions. One was with regards to the accrued insurance and a little bit more disclosure on that this quarter. I'm kind of confused as to what that number was, the cash number -- the cash collateral number as of last quarter and what the increase was this quarter? I know there was the expectation that you may be getting some cash back as of the last Q. It doesn't look like that happened, if you guys could talk about that as well as the comment that the increase in collateral was due to the market factors including growth in the Company's business and liquidity, just if you could provide a little more color on what all that means?

Sure. Of course we have too much capital tied up with insurance, but having said that, we have disclosed that we have provided letters of credit or cash for 13.5 million through September 30th and another 4.5 million in October. So that's 18 million of new collateral. We are working on getting relief and getting back some of the older collateral on old claims and old reserves, and we're optimistic that we will start to see over the rest of the year some return of collateral on old insurance shares.

Historically takes place in the very beginning of December.

My other question was on payables. They seem to be high relative to levels in the past. Is that part of your working capital planning process? Are you where you want to be, and are your vendors comfortable with where you are right now?

I think we are absolutely managing our business very tightly and making sure we do things correctly, but I also believe that a little bit of the vendor numbers are up because of our growth that we had in the quarter. And the storm damage at the end of the quarter.

Thank you.

We will go next to Ram Kasargod with Morgan, Keegan.

I have two questions for you. The first one is, there's talk about labor shortages in construction oriented markets, how is that impacting MasTec and what are you doing to increase productivity there? And then secondly, infrastructure seems to be a theme going forward, what are the greatest opportunities for MasTec when you look at all your markets?

Hi, Ram, this is Austin. I -- absolutely. We were stretched, probably the tightest we have been in five years this last little bit with the hurricane damages that have happened. And so for the first time in a while we've got a little stretched from labor perspective. We are working to get those teams built up. Now that we can see the work for more long term. I think people are available out there to come to work and get back and help us out to meet the needs of the industry. But it is tighter than it's been in probably four years.

From a perspective of infrastructure, I still think we have only seen the beginning of the fiber to the home deployment. We're scratching the surface on that opportunity. I do believe that as more new products are announced that everybody still needs to upgrade their band width capacities and capabilities as telephony is rolled out on the cable side and as video is rolled out on the RBOC side. I mean, all of these are going to continue to push for more band width, and we believe that's going to cause extra work.

When you look at our energy market, the projects we have there, our customers are spending more, they are looking for more outsourcing availability as their work force ages and it doesn't get replaced internally, they are looking to outsource more. So, we see, literally across the services that we offer, ability to grow and numbers of people that are servicing customers and opportunities that are actually out there. Our platform that we have for installation to the home for any voice video and data type of work can definitely expand, I believe, through multiple markets as we work on growing that business in the future.

Thank you.

We will return to Vik Grover with Thomas Weisel Partners for a follow up.

It's been asked and answered, thanks.

Thank you Vik.

And on to John Rogers with D.A. Davidson.

Just one follow up. With the new rules for accounting for stock options, I saw the disclosure in the Q, on the pro forma numbers, but with the accelerated options now, the granting, what do you expect the impact to be next year under your plan or have you figured that out yet?

It hasn't been totally figured out yet. It definitely was, for us, and the board, and everybody that was involved in the process, it was the right thing for us to do, we did this year to lessen the impact next year. But we don't have the final numbers of exactly what's happened. And plus the board may grant more options to certain employees between now and the end of the year which would impact my answer to you. So we will have the answer when we guide on 2006.

Okay. But presumably, it will have less impact in years going forward than it would have on a historical basis?

That's correct.

Okay. Great. Thank you.

And we will return to David Lieberman with South Point Capital. Austin, just one follow up. What do you point to as the difference between sort of the 2.50 to 2.65 expectation to 2.43? What were the major things that brought that a little bit lower?

Try that again with me, I'm not following your numbers.

Just on the revenue, the type line estimates.

Going down in the fourth quarter?

In the third quarter your estimate for top line revenue was lower?

Yes, I think what we did is, and I thought I tried to address it in my opening comments, is we absolutely saw, you see some normal work delays when these storms move through. So, when you look at Florida, and you look at the Gulf states, when those storms move through a lot of the things we do every day on maintenance and moves and adds, they stop. And then you have to pick it back up again. So we had a couple weeks, when that storm was moving up, Wilma was moving up through the coastline, I mean the whole west coast of Florida was getting drenched for four days. It really impacts your work load and your work levels. So, I think we would have been absolutely within our guidance on revenue not for the storms in the third quarter.

Okay, great. And we don't see the sort of benefit from, if you will, from those storms until the 4th?

Yes. Last year we saw the four storms hit Florida, were all in the third quarter for the most part, there was a little bit of work that happened in the fourth quarter. This year the storms came very late and were a lot stronger storms, and so we believe we're going to see the impact in the fourth quarter and possibly some in the first quarter this year.

Okay, great, thanks.

And at this time I would like to turn the conference back to Mr. Austin Shanfelter for any closing comments.

Thank you very much. Once again we would like to give everyone special thanks to all who have supported and encouraged the Company the past year, and we look forward to working with you in the near future. Thank you for participating on the call today.