Quanta Services Inc (PWR) 2003 Q2 法說會逐字稿

Good morning. ladies and gentlemen, and thank you for standing by. Welcome to the Quanta second-quarter earnings release teleconference. At this time all participants are in a listen only mode. Following today's presentation, instructions will be given for the questions and answers session. If anyone requires assistance at any time during today's conference, please press the star followed by the 0. As a reminder, this conference is being recorded today -- Wednesday, Aug. 6, 2003.

I would like to now turn the conference over to Mr. KEN DENNARD. Please go ahead, sir.

Thank you, Wendy, and good morning, everyone. We appreciate you joining us for Quanta Services conference call to review second-quarter results.

Before I turn the call over to management, I have the normal housekeeping details to run through. If you'd like to be on the e-mail distribution or fax list to receive future news releases from Quanta or if you've experienced a technical problem and didn't receive your release this morning, please call our offices at DRG&E and that number is 713-529-6600 and relate that information to folks there.

Also there will be a replay of today's call and it will be available via Web cast by going to www.Quantaservices.com and then click on the Web cast section. Or there's a telephonic recorded Instant Replay that will be available for seven days, 24 hours a day, and to use that dial in Replay feature dial 303-590-3000 and use the pass code 547655. And of course, that information is in today's press release.

Please note that information reported on this call speaks only as of today, Aug. 6, 2003 and, therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. Also this conference call today contains various forward-looking statements and information including management expectations regarding revenues, earnings per share and other results from the third quarter and full year 2003. These statements are based on management's beliefs as well as assumptions made by and information currently available to management.

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable they can give no assurance that such expectations will have proven to be correct. So statements are subject to certain risks, uncertainties, and assumptions -- including, among other matters, future growth in the electric utility and telecommunications outsourcing industry, the ability of Quanta to effectively integrate the operations of its companies, access to sufficient funding, compliance with financial covenants, attendance (ph) on fixed-price contracts, cancellation provisions and contracts and departure of key personnel, as well as general risks related to the industries in which Quanta operates. Should one or more of these risks materialize or should underlying assumptions prove to be incorrect, actual results may differ materially from those expected.

For more detailed information and discussion of these risks, investors are urged to refer to the Company's filings with the Securities and Exchange Commission.

Now I'd like to turn the call over to Mr. JOHN COLSON, Quanta's Chairman and CEO. John.

Good morning, everyone, and welcome to Quanta Services' second-quarter 2003 conference call. Joining me today is JAMES HADDOX, our Chief Financial Officer, JOHN WILSON, President of Quanta's electric power and gas division. LUKE SPALJ, President of Quanta's telecommunications and cable television divisions. After my initial discussion JOHN WILSON will present an update on our electric power operations, including significant projects in progress in overall trends.

Before we open the call for questions James will detail Quanta's financial performance and forecast.

Today we announced the results for the second-quarter of 2003. Our financial performance for the second-quarter before a $19 million charge for certain accounts and notes receivable was in line with our expectations announced at our last quarterly call. Revenues for the second-quarter of 2003 were approximately 408 million -- a $41 million increase from the first quarter.

We also continued to maintain positive cash flow and gross profits have increased over second-quarter of last year and first quarter of this year. The second-quarter in a typical year is the bidding season. Usually it is the time of the year that our customers bid a significant portion of their work for the coming year.

As we all know, these are not typical times and this year, there was not the normal bidding season. In some cases, the projects were bid but the award was delayed or the start date extended.

In other cases, the bid itself was delayed. Only one major project was canceled, but many others were slow to progress. It appears that our customers particularly on the electric power side are continuing to address their balance sheet and holding CAPEX and maintenance funds very tight.

However, as JOHN WILSON will discuss shortly, we believe this practice is starting to change for the financial pressures on some utilities lessening. Nearly all of our electric and gas customers had been successful in refinancing and are in a relatively stronger financial position. However, it is taking time for them to fund projects.

This year, it appears that the bidding season will be spread over the next several months. The nine large jobs that I spoke about in the last conference call are typical of the rest of the electric and gas business. Two of those projects have been bid but the award has been put off until September. Two of the projects have been postponed until 2004 and have not yet been bid. One project has been bid and we were not the low bidder. However, that project and the award have also been delayed. One job project bid was delayed until just recently but the results of that bid have not yet been announced. One (indiscernible) project was bid in June and should be announced in late August.

We're currently negotiating one project, however, the size has been reduced and that project won't start until the fourth quarter. Only one project has actually been canceled.

So far for the nine projects I mentioned, we've lost 1, 1 was canceled and we are negotiating 1. On four of the projects the results of the bid have been postponed and 2 are delayed. This trend is similar to other electric and gas projects we had seen. Our customers are slow to release funds for maintenance and CAPEX and while we continue to project that the year 2003 will not bring a full recovery to our markets, we believe that some of these planned projects will be implemented in the coming months.

Projecting the revenues and profits from these major projects will be difficult as continuing project delays by our customers make the timing of the work very hard to predict. Therefore, we have not included any of these projects in our projections and the (indiscernible) of any or all would be an increase in our revenues. Because of the uncertainty of the timing of these projects and other projects, we have modified our guidance until visibility improves on these and other projects.

James will discuss our expectations in his upcoming comments.

In spite of limited funding of projects and atypical bidding season our backlog is relatively flat compared to first quarter at 975 million. And a good portion of the work is yet to be awarded.

Now looking at a breakout of our revenues by type of customers, 61 percent of our revenues for the quarter was from electric and gas utilities compared to 54 percent in the second-quarter last year. Fifteen percent was from telecom companies compared to 19 percent in the same quarter of 2002. Cable customers accounted for 7 percent compared to 12 percent and 7 percent was from commercial industrial customers, 6 percent was from transportation customers and 4 percent of our second-quarter revenues were from what we classify as other customers.

In the second-quarter of 2002, C&I (ph) transportation and other combined totals 15 percent of our revenues. Our largest customer for the quarter made up only 5.2 percent of our revenues. Our top 10 customers for the quarter equaled 29 percent of our total revenues and our top 20 customers made up approximately 42 percent of revenues.

At the end of the second-quarter, our employee count was 11,486, an increase of 334 employees compared to the first quarter. Revenues during that period were up $41 million. While employee numbers were up 334, salaried employees were reduced by 11 percent quarter over quarter. In the first quarter, you may recall salaried employees dropped 7 percent from the previous quarter. This exemplifies our focus on our cost of sales and reduction of SG&A. SG&A for the quarter was 38.2 million compared to 45.2 million in the second-quarter of 2002. Both numbers are precharged.

We continue to pursue cost savings initiatives including consolidation of operating units in closing redundancy facilities. Before I turn the call over to John we will discuss our electric power operations.

I'd like to summarize the developments on the telecommunications and broadband cable side of our business.

As we anticipated, the telecom markets have stabilized and no further decline is expected at this time. This allows us to adjust our operations to efficiently serve the remaining market, to reduce costs and work on improving margins in this sector. We have decreased our headcount, increased our margins, and positioned Quanta in the active and profitable segments of the industry.

Although we don't see a recovery this year, current developments could have a positive impact on our telecom business in the future. The first of these developments is the fiber to the home or the FTTH sector. Quanta has responded to a number of proposals from municipalities for FTTH networks. Many municipalities are considering building ocean (ph) access networks, enabling retail service providers to deliver telephony, high-speed Internet access and interactive two way video-based services.

In addition, some of our RUS customers -- serving rural areas -- are investigating FTTH initiatives. Also, as many of you are aware, the RBOCs has a FTTH proposal out to equipment vendors. We will have to wait and see if their initiatives are funded.

Lastly, the government has issued a request for proposals to carriers to build a dark fiber network. When awarded, it will require the carrier to connect government facilities to their backbones at various points throughout the country. These are just a few of the viable opportunities we believe will be the first to emerge from the current market conditions.

Our cable business remains flat compared to the first quarter, primarily because of the lack of spending of our customers. We do continue to leverage our relationships and have work in progress with both Comcast and Adelphia. The continued use of the Internet -- promising fiber to the home prospects -- and the development of new technologies that use available bandwidth lead us to remain cautiously optimistic.

We will see some positive impact on our business in the next 6 to 24 months. We feel we have sized all of our businesses for the current market and are poised to expand as the market returns.

Now I'd like to turn the call over to JOHN WILSON, he's the President of electric power and gas division who will give us an overview of our power operations and overall industry trends. John.

Thank you, John, and good morning everyone. From an operational standpoint, the power and gas division continues to take steps to increase profitability. The consolidation of several operating units during the first six months of this year have been very smooth and effective. Operating units with service, operational, our regional synergies are now able to leverage a larger pool of resources to better market their services and increase their competitive advantage.

We continue to evaluate and act on opportunities that will increase Quanta's position in markets and regions we serve and strengthen our balance sheet. Last month, we merged several units in the South that have expertise in directional boring primarily in telecom into an operating unit whose customers are increasingly demanding those services for gas distribution.

This also makes it simple and seamless for our customers to access the full capabilities and services of Quanta.

There is no question that utilities throughout North America rely on skill and knowledge base of Quanta's workforce to address real and current problems such as bottlenecks in our aging power infrastructure. In the second-quarter alone, our energized service crews executed several transmission projects to address some of these issues. One example is a one-of-a-kind project for longtime customer Kansas City Power and Light. The 32 mile upgrade of what is called the (indiscernible) transmission line may not (indiscernible) at first glance. Then you consider that the line represented one of the most significant transmission congestions in the region.

Yet it was upgraded in less than five months for less than 8 million compared to three to five years and 30 million or more for a conventional upgrade, was funded from revenue generated by the increased capacity with the payout of less than eight months which means the avoidance of rate increases for rate payers and reduction of construction cost for KCPL.

Lastly the high-voltage line -- 345,000 volts -- was upgraded without interrupting electrical service by utilizing the energized methodologies available only with Quanta. I would like to stress again the significance of our exclusive energize capabilities. Quanta is the only company in the country who has reconducted transmission voltages of this magnitude in an energized state. Meaning -- that if a utility desires to benefit from the cost and time savings of these practices, they have to turn to Quanta. The (indiscernible) industry first of the project brought attention from Kansas state representatives, the FERC Commissioner Pat Wood and various media outlets.

Also in the second-quarter our energized services group replaced 9 miles of 138 V transmission line in Wisconsin. As word spreads about these projects and the significant cost savings possible through energize work, we are experiencing increases in inquiries about our energize methodology.

In fact, in just the past few months, we have expanded our services to several existing customers by introducing them to a line master robotic arm and the other exclusive energize services we provide.

Our transmission projects and progress include the following: we have a significant workforce in Nevada on what is the largest transmission line under construction in the U.S. today. 180 miles of 345,000 V transmission line. In the Southeast we're working on 90 miles of 230,000 V transmission line. While weather did not have a large impact on our second-quarter results, we recently had more than 200 people in Memphis, Tennessee, after storms wiped out power service in the central part of the city and we've also provided support to restore power in the Gulf region after Hurricane Claudette.

Recent developments in the transmission side of our business lead us to be optimistic about future opportunities. For example, the Midwest Independent transmission system operator just recently unanimously endorsed a five-year, 1.32 billion transmission grid expansion plan. The improvements will be made by the Midwest IFOs transmission only members to meet the region's reliability needs. Quanta currently works with many of these members and we believe that this expansion plan will bring incremental business as it is implemented.

We are seeing increased activity on the distribution side of our operations as well. Utilities are increasingly seeking to outsource their distribution engineer, procure construct or their EPC functions. For one customer on the West Coast we have approximately 120 engineers in place -- planning and designing the required maintenance on the customer's distribution system. This includes evaluation and design, which then our construction crews execute.

As utilities increase the extent to which they supplement their own workforce, they realize significant cost savings. This trend is occurring in operation and maintenance as well as Capital, our new construction distribution project.

As John mentioned, the utility industry is not gaining the momentum we had hoped in the first two quarters of the year. Many bids have been delayed or extended. However we remain confident in the stability of our customers and that their focus on their business should mean an increased demand for our services. In fact, some industry experts indicate that unregulated utilities may be the first to emerge from the current market conditions.

Many have secured new funding and a reprieve from their creditors. With this pressure reduced, they should be in a better position to shift their focus back to the operations of their core business. In some cases additional funding may prompt these utilities to release some of the projects currently on hold.

New legislation may also spur new investment into the utilities sector. An energy bill currently pending before the Senate repeals the 1935 Public Utility Holding Company Act which restricts utility mergers and limits foreign ownership. Just last week, the Wall Street Journal wrote that the bill is designed to increase capital investment in the sector by broadening the array of companies allowed to invest.

The House has passed a similar measure as well. If the bill becomes law, it could re-energize the industry and encourage utilities to release funds for operations as well as CAPEX for new construction of power infrastructures.

To conclude, we continue to see utilities focused on addressing the issues at hand. Ongoing distribution maintenance, relief from transmission congestion, and optimization of their business operations through outsourcing. And as our customers continue to strengthen, recover and focus on their future, they will continue to execute the strategies and projects that will ensure the reliability and stability of their infrastructure.

For this, they can rely on Quanta Services. From full outsourcing programs to emergency restoration, utilities throughout the U.S. know that Quanta has the resources, skill required to keep them competitive. We will continue to keep you updated as we continue negotiations with business progress and pursue strategic opportunities that will contribute to Quanta's long term possibility and strength.

Now I'd like to turn the call over to JAMES HADDOX. James?

Thanks, John, and good morning, everyone. Today we announced revenues of 408.3 million for the second quarter compared to 432.5 million in the prior year second quarter. This reduction in revenues is due primarily to the slowdown in spending by Charter and Adelphia, who are our largest and fourth-largest customers during last year's second quarter.

Net loss attributable to common stock for the quarter was 9.8 million or eight cents per diluted share compared to a net loss of 177.4 million or 2.26 per diluted share in the second quarter of 2002. We provided a table as part of our press release that reconciles our GAAP results to certain non GAAP measures that we feel are important to understanding our performance for the second quarter of 2002 and 2003. I won't discuss the adjustments made to the 2002 quarter as they've been discussed in previous calls and SEC filings. However I will describe the large bad debt charge we incurred during this year's second-quarter.

You may recall that in previous conference calls, we discussed financing that we provided for the construction of independent power plants we built in 2001. The company for which we built the plants is in bankruptcy and their performance continues to deteriorate. We have alleged in the bankruptcy proceedings that the reason for this deterioration is poor management and have petitioned the bankruptcy judge to replace the management of this company. It's impossible at this time to anticipate whether new management will be able to generate positive cash flow from these facilities.

Therefore, we have written down the long-term note receivable. This write-down accounts for about 95 percent of the $19 million charge taken during the second-quarter.

Our gross margins of 13.1 percent for the second quarter of 2003 compared with 10.3 percent during the first quarter of 2003. The increase in margins for the second-quarter over the first quarter of 03 was due to adverse weather conditions in the first quarter and an improving operating environment.

Gross margins on a GAAP basis were 11.1 percent during the second quarter of last year. The precharge gross margins for the second quarter of last year were 12.9 percent compared to 13.1 percent this year.

We continue to make progress in reducing our G&A expenses. Excluding the impact of the 5.9 million in proxy costs and 8.4 million in that debt expense incurred during the second quarter of 2002, our G&A expenses were 45.2 million in the second-quarter of 2002. G&A expenses of 57.2 million in the second quarter of 2003 include the previously mentioned bad debt write-off of 19 million.

Excluding the $19 million charge, our G&A expenses for the second quarter of 2002 would have been 38.2 million which is down 7 million from the second-quarter of 2002 and is down sequentially from 38.8 million or down 600,000 from the first quarter of 2003. Our G&A expenses continue to include cost related to facility abandonment, severance charges and costs associated with a collection of receivables.

Our pre charge reduction in G&A reflects our continuing efforts to align our fixed cost structure to the current operating environment.

For the second-quarter of 2003, EBITDA was 11.1 million or 10 cents per diluted share. The EBITDA calculation begins with a net loss of 9.8 million plus a net interest of 7.9 million, depreciation and amortization of 15.3 million and stock based compensation expense of 870,000, less the tax benefit recorded during the quarter of 3.2 million. If you add back the 19 million charge taken during the second-quarter of 2003 that will result in non GAAP adjusted EBITDA of 30.1 million for the quarter -- or 26 cents per share.

Cash flow from operations totaled approximately 35.9 million for the quarter due to a tax refund of 38 million being received during the quarter which was partially offset by increased working capital requirements as revenues in the second-quarter increased by $41 million over the first quarter. Cash flow from operations less capital expenditures of 7.6 million or free cash flow was approximately 28.3 million for the quarter. Year-to-date cash flow from operations through June 30, 2003, totaled 73.2 million. If you subtract year-to-date CAPEX of 12.5 million from that number it yields 60.7 million of free cash flow for the first half of 2003.

We continue to maintain our previous capital expenditure projection of about $30 million for all of 2003.

As John said a little earlier, our current backlog of work to be completed during the next 12 months is approximately 975 million, which compares to 980 million in backlog as of the first quarter conference call. Backlog represents the amount of revenue that we expect to realize from work to be performed over the next 12 months on contracts, including estimates of work under long-term maintenance contracts and new contractual agreements on which work has not yet begun.

Our days sales outstanding which we calculate including current accounts receivable plus cost in earnings in excess of billings less billings in excessive cost were 87 days at June 30th vs. 88 days at March 31st of 2003. At quarter end we had $86 million in cash and no borrowings outstanding under our line of credit. We had $84 million in letters of credit outstanding, primarily to secure our insurance program. We are in compliance with our bank covenants and currently forecast no need for additional borrowings for the remainder of 2003.

At June 30th, 2003, the Company had a debt to total cap ratio of 36.5 percent. Concerning our outlook for the future, we project that revenues in the third quarter of 2003 will be in the range of 410 to 430 million and that EPS will be in the range of 4 to 7 cents. For fiscal 2003, we expect revenues of 1.55 to 1.65 billion. Reported earnings per share to range from a loss of two cents to earnings of two cents per share and precharge non GAAP earnings which would exclude the $19 million charge to range from eight cents to 12 cents.

We expect operating margins for the second half of the year to be between 4.5 percent and 5.0 percent. For additional guidance, in case you have your own model, we're projecting our tax rate for the third quarter to be 48 percent and our diluted share count to be about 116.7 million shares.

Looking forward, we will continue to focus on the implementation of our proven business strategy, measurement of progress, recognition of areas for improvement, the application of our primary possible capabilities and the foresight to market Quanta in growth areas. These continued efforts will ensure Quanta's position as the market (indiscernible) to recover. This concludes our formal presentation and now we will open up the line for Q&A. I will turn it over to you, Wendy.

Wendy, are you there?

Thank you, sir. Ladies and gentlemen, at this time we will begin the question-and-answer session. Alex Rygiel.

Friedman Billings Ramsey. Couple of questions. First, can you quantify the size of the government opportunity with regard to dark fiber?

Luke, you'll answer that?

(indiscernible) 100 million to 300 million on outside plant work, also there's a large inside plant portion for the optical network and equipment but at this time, I'm not sure what that is and I think there's been a number of articles about Lucent and other vendors pursuing that opportunity also I think there's probably more literature out there on the equipment side, but we would be after pursuing those opportunities also Alex.

Has the (indiscernible) outside plant work and if not when would you anticipate that going out? And how many competitors do you see going after that work?

The RFP (ph) been out for a while but the carriers award meaning carriers will get it and the work will consist of, again, the work from certain government facilities which are nondisclosed to the backbone (indiscernible) and so that has been publicly available for quite a while and they are in current negotiations with various carriers and who gets that work again they may publicly bid or negotiate but we have been involved I am sure and maybe our peers have been involved in helping some of these carriers price the scope of that work.

And what is the time frame of that project?

Two-years --

Two-year starting at what point of time in the future as opposed to starting in August and been delayed (indiscernible) I don't know what the current start date is. Great -- is there any flexibility to cut back on your CAPEX more aggressively or sell some equipment some of your peers over the last two years have been able to sell equipment (indiscernible) such that CAPEX has netted out to about 0 -- do you see that as being an opportunity going forward?

I think that it could under the right circumstances but I think the CAPEX situation in our business if you cut it too drastically you have to make up for it when times turn around. And we're trying to stay in a position where our equipment is top-of-the-line and be prepared to take advantage of opportunities as the market recovers. What we can do, of course, is cut back on the amount of equipment that we rent which we have and that also helps with margins when you can reduce your rental equipment, but we've cut our CAPEX I think to less than half of what it was in say the year 2000 and I think we get much lower than that we're going to have to play catch up when times turnaround.

With regards to your telecom and cable business both of them snapped back nicely sequentially, was that due to market share gains, increases in customer CAPEX or traditional seasonality snapbacks?

Oh, I think part of it is seasonality, certainly, second quarter's always better than the first quarter. Third quarter's typically our best quarter seasonality. But we're seeing a bottom end of our markets -- we're not really seeing our customers start spending increasing amounts of money. The large projects that we talked about have been delayed. And they have been put off and so forth. Those would be incremental, I think, to the spending that our customers have been used to in the past few quarters, but I think most of it's seasonality probably.

One last quick question. What remains in your long-term notes receivable? Which customers?

Long-term notes receivable is made up mostly of Adelphia.

Branal Tarique

Branal Tarique) from Q. Question: what is the availability under your (indiscernible)?

We don't really -- we haven't really calculated that this quarter but we don't really need it because we've got $86 million in cash and we have no forecast that needs for anything under the credit facility. We have availability for letters of credit which we need to -- we've already actually provided for all the letters of credit for our insurance program up through March of '04.

Okay and you should tax rate (indiscernible) 48 percent (indiscernible) quarter-over-quarter-- is that right?

Yes I said 48 percent a minute ago but I was looking at my notes a second ago and the tax rate should be 43 percent -- that is a correction to the number that I just said.

And what is your cash taxes, what is your tax cash rate (indiscernible)

I don't expect to have any cash taxes this year. I actually expect to receive a refund.

One more (indiscernible)

Once we file the 2003 tax return I expect it will get a refund.

(indiscernible) the number.

Not at of this point in time. Depends totally upon the results for the third and fourth quarter and I can't quantify a number for you right now.

But you don't expect any cash tax to go out this year?

I don't -- there may be a small amount of cash tax may go out related to state tax. (indiscernible) (MULTIPLE SPEAKERS) tax payments but I expect that will be more than a couple million dollars.

Your (indiscernible) from Adelphia. Any progress from that at all (indiscernible)

No, there hasn't been any activity on that at all. Still tied up in bankruptcy court. We haven't seen any activity. I've heard rumors or I've seen things written about it saying that they expect them to come out of bankruptcy in the fourth quarter of this year but I would really be surprised at that.

Our next question comes from Tim Griffith.

South West Securities and could you guys break down how the employees are as between salaried and hourly for me?

Yes I can. Salaries is about 1,486 -- 85. And hourly is approximately 10,000.

Al Toboya.

(indiscernible) Investment Management. Regarding the guidance for 2003, if I'm doing my math right, I just used midpoints -- you're expecting fourth quarter to be down sequentially from the third quarter in revenue? an you talk about why that would be different from a seasonal standpoint or from contracts running off or something?

Typically, you have a reduction in revenues in the fourth quarter over the third quarter because of weather. I mean, it is difficult to project the weather, December is typically a bad month and sometimes November can be a bad month, depending on how early the winter comes and where we're working on projects. So under normal seasonal conditions, the fourth quarter has lower revenues than the third quarter.

And you also have Thanksgiving and Christmas in the fourth quarter that affects the amount of work that you get done in that quarter.

Right and then if I -- you do have a contract -- one of the contracts you said but you're not counting on it to ramp in the fourth quarter? Right?

That's right -- we're negotiating a contract. We haven't won it.

And then regarding 2004. My assumption is that the expenses that you set will be somewhat released (indiscernible) revenues will be somewhat dictated by the upcoming flow of information regarding the contracts in the next three to six months. Is that a fair assumption?

Yes and, too, you have to keep in mind that those projects that we talk about are exceptionally large projects and they're not all of the work that we're looking at or that is being proposed. So, yes, we think that the utilities had these projects in hand, ready to go and in many cases we had bids in our hands in the first quarter -- at the end of the first quarter. However those projects have been delayed and so have a lot of other smaller projects. They're there. We know they're there, the funding's there for them but they're just slow to spend the money. I think that kind of everyone's waiting to see where the next shoe will fall, so to speak, in regard to recovery of the economy and where the market itself is going to go. But I think that 2004 will have more of these types of projects in.

So, basically, if I am looking at sort of modeling 2004 revenue, you're looking for revenue increase logically if the telco market is stabilized cables stabilized and you got the potential for some of the bottom (indiscernible) electric and gas utilities business to release, it should be an up year from top line standpoint.

That's correct.

Once again, ladies and gentlemen (CALLER INSTRUCTIONS). Alan Metroni (ph).

Copper Beech Capital. Just to get some background -- the long-term receivable, the note receivable you have from Adelphia. How big is that?

It's about a net balance of about 30 million.

And you wrote that with the gross amount. What did you write it down to?

It's about 33.5 million is the gross balance.

Is there a reason why you only wrote it down 10 percent?

Most of the work that we did for the Adelphia network is in the West Coast area which is one of their best networks. It's secured by Mechanics (indiscernible) so we felt like we would come ahead of even the banks in that situation. And the bank debt on some of those systems out there -- it is kind of difficult to get your hands around it -- but in some cases the bank debt is trading above 90 percent. And we think we would come ahead of the bank.

So it's on a system level? It's not on a overall company level.

That's right.

So when I see Dicom having written it down to 50 cents on the dollar they also have Mechanics liens (ph) it's just not comparable to a company -- the company depends where they're (MULTIPLE SPEAKERS)

It might not be, I can't tell you because I don't know where Dicom (ph) working or how they made their decision. But it might not be -- they might be on a different system from what we're working on. It is a system calculation.

Also can you give us a little more granularity within your telco and cable business? Who are some of the bigger customers this quarter and what do you expect out of them for the next few quarters?

Okay, give me a second here and I'll see if I can find the large telecom customers for the quarter. I know that Comcast was our sixth largest customer. Adelphia was our ninth largest, AT&T was 13th. Ericsson was 19th, Century Telephone was 20th, BTE -- I'm sorry -- Verizon was in there in our top 20 as well. That far enough for you?

Thank you sir. Our next question comes from David Matherly.

(indiscernible) Associates. Can you tell the cost structures you've gotten to, trying to get into line with current operating department is petition to support growth both in the stability with telecom cable also with electric in 2004?

Yes. We would not anticipate increasing overhead, significantly, for the first tens of millions of revenue increase. As we receive hundreds of millions of dollars of revenue increases, (indiscernible) would increase cost would increase.

Ian Lappe.

Good morning. Third Avenue Management. Jim, could you -- as you look at 86 million in cash, talk about sort of what your priorities are for that between maybe buying back debt if you think you need to fund acquisitions or CAPEX or anything else?

Right now it is our intent to keep the 86 million for working capital requirements in the event that we get any these large contracts. There may be a need for capital expenditures and there may be a significant need for working capital. So that's my primary use for the 86 million. Our senior notes that are outstanding have a fairly significant (indiscernible) provision position mainly due to the following entrance (indiscernible) those notes. So I wouldn't be doing any of that and the other debts we've got outstanding is the subordinated converted and there's a restriction on our loan agreement and our senior notes agreement against paying that back. So the primary use for the 86 million is to fund working capital and CAPEX needs in the future.

Okay. Great -- thank you very much.

Alan Metroni.

Can you tell me what normalized EBITDA margins are in your business? I mean if you do about 118 million this year the way you're sort of projecting comes out to about seven -- a little over seven percent. What do you think a reasonable number is for '04 or within a couple of years once your business stabilizes and you get your costs out?

That's difficult to say. At one point in time, we were in the 17, 18 percentage of our range.

I think for our type of business you can anticipate EBITDA margins of 13 to 17 percent, 14 or 15 in normal times, and we haven't seen normal times for 18 months, nearly two years. But I think you can expect EBITDA margins in that range.

Can you give us that across the different businesses? Which ones are your higher business generally EBITDA margins vs. lowered -- maybe give us the spreads? Telco, cable, utility?

You would typically see a higher EBITDA margin in the cable business. Under normal circumstances, it would be probably two or three percent higher than telecom. I mean it's difficult to say this because we haven't encountered normal conditions in these businesses for the last two years. But two years ago you would have cable be three or four percent over telecom and telecom be two or three percent over utilities.

That's probably normal for the first 30 years of my career but the last couple have been somewhat unusual.

Thank you. Gentlemen, there appear to be no further questions. Please continue.

Thank you. I would like to thank all of you for participating in our conference call this morning. We appreciate your questions and your ongoing interest in Quanta. Thank you and goodbye until next quarter.

Ladies and gentlemen, this does conclude the Quanta second-quarter earnings release teleconference. We would like to thank everyone for your participation today and you may now disconnect.