Quanta Services Inc (PWR) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Quanta Services fourth-quarter earnings conference call. (OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded on Thursday, February 26, 2004. I would now like to turn the call conference over to Mr. Kip Brup (ph), Managing Partner.

Good morning, everyone. We appreciate your joining us for Quanta Services conference call to review fourth quarter and full-year 2003 results. Before I turn the call over to management, I have the normal housekeeping details to run through. If you would like to be on the e-mail distribution or fax list to receive future news releases for Quanta, or if you experience a technical problem and did not receive your fax or e-mail this morning, please call our offices at DRG&E and relay that information to us. Our number is 713-529-6600.

Also, if you would like to listen to a replay of today's call, it will be available via webcast by going to www.QuantaServices.com, and click on the webcast section there. Or there's a telephonic recorded instant replay that will be available for seven days, 24 hours a day. To use that dial in replay feature, dial 303-590-3000 and use the passcode 571359. That information is also in today's release.

Information reported on this call speaks only as of today, February 26, 2004, and therefore you are advised that time sensitive information may no longer be accurate as of the time of any replay. As you know also, this conference call today contains various forward-looking statements and information, including management's expectations regarding revenues, earnings per share, and other results for the first quarter and full year of 2004. 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 expectations reflected in such forward-looking statements are reasonable, they can give no assurance that such expectation will have proven to be correct. Such statements are subject to certain risks, uncertainties and assumptions, including, among other factors, future growth of the electric utility and telecommunications outsourcing industry, the ability for Quanta to effectively integrate the operations of its Company, access to sufficient funding, compliance with financial covenants, dependence 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 operate. Showed 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 a discussion of these risks, investors are urged to refer to the Company's filings with the SEC.

Now I would like to turn the call over to Mr. John Colson, Quanta's Chairman and CEO. John?

Thanks, Kip. Good morning, everyone, and welcome to Quanta Services' fourth-quarter and year-end 2003 conference call. Joining me today is James Haddox, our CFO; John Wilson, President of Quanta's Electric Power and Natural Gas Operations; and Luke Spalj, President of our Telecommunications, Cable and Specialty operations.

After my initial discussion, John Wilson will present an update on our electric, power and gas operations. Then James will outline our financial performance before we open the call for questions.

Today, we announced the results of the fourth quarter and the year-end 2003. Revenues for the fourth quarter of 2003 were approximately $431 million with operating income before charges of $12.7 million. Revenues for the year totaled $1.6 billion. These results for the quarter were in line with our expectations announced in our last quarterly call.

Revenues, by type of customer, for the fourth quarter were -- 59 percent from electric and gas utilities, compared to 58 percent in the fourth quarter of last year. 14 percent were from telecommunications customers compared to 14 percent in the same quarter last year. 8 percent were cable revenue compared to 10 percent in the fourth quarter of 2002, and 19 percent ancillary services compared to 18 percent in the fourth quarter of 2002.

Revenue breakout by type of customer for the 12 months ending December 31, 2003, was 60 percent was work for electric and gas utilities, 15 percent for telecommunications Companies, 7 percent for cable, and 18 percent ancillary.

Our largest customer for the quarter made up only 7 percent of our revenues, our top 10 customers for the quarter equaled 33 percent of our total revenues, and our top 20 customers made up approximately 44 percent of revenues.

At the end of the fourth quarter our employee count was 11,217 compared to 11,629 at the end of the third quarter.

2003 was a tough year in both of our major industries -- electric power and telecom business. Limited capital spending, uncertain regulatory progress, and extreme competition made it hard to grow revenues and maintain margins. At times over the past 12 months, there appeared to be progress being made and opportunities breaking loose in the industries we serve.

However, we recognize that it will take time for these opportunities to gain momentum. Our customers must continue to improve their balance sheets before capital spending and maintenance budgets return to normal. There's no doubt that the major blackout in the Northeast got the attention of the public and politicians alike. Soon after this August event, any American could tell you about the deplorable state of our nation's power transmission infrastructure, and how it needed to be fixed. However, there's been little regulatory progress or other efforts to map out methods to pay for the upgrades, determine accountability or provide incentives to utilities for infrastructure enhancements to address the bottlenecks and dilapidated systems. And it looks like it will be after the presidential election before we see significant progress or increased spending on these issues.

In 2003 our telecom business stabilized. However, capital spending dips 19 percent between 2002 and 2003 for North American Wireline and Wireless carriers. Industry expectations for 2004 are for continued stabilization with a slight 5 percent increase in CapEx for the same group.

As competence is restored we expect to see more normalized spending. Although we will continue to experience margin pressure. However, with the operational improvements we have implemented over the past year, we believe our business is sized right to pursue opportunities while minimizing margin pressures.

While wireless and central office installations are not a large part of our revenues, we do expect to see some key opportunities in these markets. As new technologies are developed and deployed, service providers must install new equipment to support applications that require more bandwidth. We do see spending from these customers, although still moderate, to meet this increasing demand for bandwidth. In fact, our 2004 backlog is almost doubled in these business lines.

As you may know, Verizon recently awarded a portion of their fiber to the premise initiative. Although this portion of the work was awarded to another provider, we still have an opportunity to secure some of Verizon's fiber to the premise work. The recent award did not include a large portion of the work included in RFP to which we have responded.

Also, as previously stated, increased spending in this sector, which will result from Verizon's initiative, should help relieve margin pressures across the sector.

Even in the difficult operating environment of 2003, we were able to maintain revenues and profitability. We had a precharge operating income of $42 million for the year, free cash flow, excluding losses on the early extinguishment of debt, of $81 million for the year.

In addition, over the past 12 months, we refinanced the Company, which will reduce our net interest expense by approximately $8 million annually. These refinancing initiatives mean a reduction in the interest rates on our debt, no principal payment due on our debt for 3.5 years, and with our cash flow we have approximately $200 million of cash on hand as of today. These initiatives provide the liquidity we need to insure our ability to fund our growth for the future.

We also consolidated (ph) operations in 2003, from 38 operating units at the beginning of the year, to 30 operating units currently. We reduced headcount in 2003. We started the year with 11,744 total employees, and ended with 11,217.

And we also reduced SG&A significantly year-over-year. I commend the entire Quanta workforce and management team for working diligently to reduce SG&A. And also to pursue profitable opportunities and insure quality service and customer satisfaction in 2002.

With 2003 behind us, we look to 2004 for opportunities to further the financial and operational strength of Quanta. Even though the telecom industry has stabilized, cable work is continuing to decline and the current gas industries are in regulatory limbo.

As a result, we do not expect a recovery of our markets in 2004. Customers continue to suffer from balance sheet problems and are not eager to re-establish spending at traditional levels. However, we remain confident that there are a number of opportunities in our markets. And we remained committed to pursuing the opportunities and industry segments that will meet our profitability standards. We do not need a spending boom to grow our profits to normal levels. All we need is for our customers to return to normalized CapEx and maintenance spending.

Our strategic direction for 2004 is twofold. Number one, stay the course. Maintain our focus and leadership position, in areas of core expertise, and continue to execute projects with an eye to safety and quality, and expand the share of wallet (ph) with existing customers, while monitor the industry for expanding opportunities.

Number two, to pursue new opportunities for growth. This has been one of our largest initiatives to date in 2004. Quanta has always been an aggressive Company, and we refuse to sit idle until our customers regulatory, CapEx and balance sheet issues get resolved. We have established a new business division named Quanta Government Solutions that will leverage our core expertise to pursue opportunities in the government arena.

The United States government continues to request proposals for power and communication infrastructure projects here in the United States and overseas. In fact, the first two proposals the division responded to are to help rebuild the electric infrastructure in Iraq. Quanta Government Solutions was formed to serve as the prime contractor for such projects. Headquartered in Houston, Quanta government solutions will utilize specialized staff and resources.

Historically, a small portion of our revenues have come from government projects -- limiting our exposure to government processes and system requirements. To be successful in our endeavor to increase our government work, we've made important investments in people, processes and systems. Opportunities that lie ahead in this area are significant, and no other infrastructure provider is as strongly positioned to leverage these opportunities as Quanta.

However, it is important to note that government work is a long-term, strategic focus for Quanta moving forward. We do not intend to abandon this initiative once spending in other industry segments return.

Our expectations for 2004 are to achieve revenues of 1.6 to $1.7 billion, and EPS of 20 to 30 cents. These projections do not include any revenues that may be secured as a result of major transmission projects as part of an initiative to rebuild the United States electric grid system, does not include momentum in the development of fiber to the home, or other Wireline work, or major wireless initiatives. Or, any government work that may be secured by Quanta Government Solutions.

We're excited about a new year, and although we do not expect a full recovery in 2004, we believe that there are opportunities and demands that only Quanta can meet. We will work diligently to pursue these, while maintaining profitability and continuing to strengthen our balance sheet. Now, I'd like to turn the call over to John Wilson, who will discuss the fourth quarter and full-year initiatives in the electric power and natural gas industries.

Thanks, John. And good morning, everyone. As John mentioned, 2003 was a tough year for the industries we serve. However, even with those challenges, we made significant progress in optimizing our operations. Before I talk about some of our key projects and progress, I'd like to highlight some of the milestones we reached over the past 12 months.

A year ago, I participated for the first time on this call, and outlined the new industry-aligned structure for the power and gas operations of Quanta. I'm proud to be back here today to communicate the success of that strategy and the overall benefits to our customers, our employees, and our overall efficiency. Following are just a few of the initiatives that we've been able to implement in the past year.

First, we have greatly consolidated our operations in electric power and natural gas. As a result, we have 11 operating units serving our utility customers. We implemented these transitions with no interruptions to the customer. They continue to receive the same quality service from the same team, with the same commitment to safety. The advantages in our internal efficiencies, the operating units have access to expanded resources, are more closely managed, and have more opportunities for growth.

As we have consolidated operations, we have been able to contribute to SG&A reductions by eliminating select positions, and merging some positions with others where there were redundancies. We have also placed new leaders in certain positions throughout the power and gas organization. In all cases, these changes have improved the operating units performance. In fact, with one operating unit, the new management has more than tripled gross profits while increasing revenues. This is a perfect example of Quanta's strategic focus.

While our customers are still restrained by CapEx, there are opportunities for revenue growth in our traditional business. The key to success is margin management. By limiting margin erosion in the tough operating environment, we're able to maintain the strength of our balance sheet.

Lastly, we have strengthened our position with customers by continuing to deliver unique solutions that meet their needs and exceeds their expectations. One example of this is (indiscernible) Stilwell (ph) project that we completed last spring for long time customer Kansas City Power and Light in the Southwest power pool. I know you're familiar with this project and Quanta's ability to reconduct their more than 30 miles of 345,000 volt powerline energized with no interruptions to the power consumer, in less time and for less money than traditional methods.

But I'd like to remind everyone that only Quanta has the line master robotic arm, which we use in conjunction with our proprietary energized methods and skilled workforce to successfully implement and energize reconductering.

Currently, we have seven patents pending with the US patent office relating to the methods, procedures and specialized equipment we use when performing energized projects. Another example of the unique value Quanta brings to our customers is a joint trench project we have in progress here in Texas. In this case, Quanta is installing electric, gas, cable TV and telephone in one trench for our new housing development. We expect to see improved margins on the project, and at the same time, all four customers involved will realize significant savings.

Lastly, yet very high in importance, is the fact that bringing this value added services to these customers, our relationships have been strengthened. Few contractors have the diverse customer base and existing relationships to coordinate a project on this level. We believe we will continue to see more interest in these types of joint trench projects.

Also in the fourth quarter, we expanded our relationship with Amera (ph), the holding Company for Bangor Hydro and Secure Baltimore Gas and Electric as a new customer.

We continue to serve and expand our business with large, long-time customers such as Puget Sound Energy, Southern California Edison, Centerpoint Energy, San Diego Gas and Electric, and Intermountain Rural Electric. These utilities were our top 5 customers for 2003.

We continue to seek utilities outsourcing more work, particularly projects with unique challenges our broad workforce requirements. Through the peak of the winter season, many utilities continue to call on Quanta for emergency storm restoration. The Carolinas experienced widespread outages as a result of an ice storm last quarter. The Northeast also had a variety of ice storms that have effected power delivery. As always, we deployed our crews quickly to help these customers restore power in the regions they serve.

In fact, we can supply the largest number of contract personnel to repair storm damage utility infrastructure in the nation.

In November, we announced a new large transmission contract with America Electric Power. We continue to move forward with this customer to meet their goals, budgets and timeliness. The new construction of the first ever six bundle 760 -- 765,000 volt line is unique for many reasons. It incorporates a a new lattice design in challenging terrain, which includes the national Forest, and will require significant amount of helicopter work. Right away acquisition, clearing, receiving the materials, and initial phase of construction have begun, and we expect tower (ph) installations to begin in April.

As John mentioned previously, we have positioned Quanta Government Solutions to aggressively pursue work for government entities here in the US and overseas. Depending on the circumstances, we will supplement our newly hired experts and government contracting with our existing crews to ensure full utilization of our workforce and manpower efficiency.

As most of you know, the electric and gas division accounts for approximately 8,000 employees, providing approximately 1 billion in annual sales to utilities. This gives us the electric infrastructure experience, strategic thinking, and proven field execution to be able to implement this type of initiative. We will keep you posted as these and other opportunities develop. Now, I would like to turn the call over to James Haddox, Quanta's CFO.

Good morning, everyone. Today we announced revenues of 431.3 million for the fourth quarter compared to 432.8 million in the prior year's fourth-quarter. Revenues for the year 2000 were 1.64 billion compared to revenues of 1.75 billion for full year 2002.

Our gross margins of 12.4 percent for the fourth quarter of 2003 compared to 12.6 percent during the third quarter of 2003, and 13.6 percent during the fourth quarter of 2002. Higher margins from telecom work in this year's fourth quarter were more than offset by lower margins from utility work due to the prior year's fourth-quarter having a higher proportion of high margins storm work.

Our G&A expenses were down from 41.2 million precharge in the fourth quarter of '02 to 40.9 million in the fourth quarter of '03. G&A expenses increased by about $2 million between the third quarter of '03 and the fourth quarter of '03, primarily due to higher legal and other professional fees being incurred.

Our net loss attributable to common stock for the quarter was 25.7 million, or 23 cents per diluted share, compared to a net loss of 6.7 million or 10 cents per diluted share in the fourth quarter of 2002. On a precharge basis, net income for the fourth quarter of 2003 was 4.4 million, or 4 cents per share compared to 4.8 million or 6 cents per share precharge in the fourth quarter of '02.

We have 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 fourth quarters of '02 and '03. I won't discuss the adjustments made in the 2002 four (ph) quarters, these have been discussed in previous call and in SEC filings.

However, I will spend a moment describing charges we incurred during this year's fourth-quarter. The first charge was a $35 million pretax charge associated with the early extinguishment of our $210 million in senior notes in our previous credit facility. And these were discussed during our last conference call. The second charge was a good will write off of 6.5 million that was associated with the closure of one of our telecom subsidiaries during the quarter, and the third charge was a $2.9 million loss as a result of the disposition of our investment and our fiber network.

For the fourth quarter of 2003, EBITDA was a -9.7 million, or a loss of 9 cents per diluted share. The 9.7 million EBITDA calculation begins with a pretax loss of 39.9 million. I'm sorry, 39.3 million. Adding back net interest of 7.3 million, depreciation and amortization and goodwill impairments of 21.4 million, and non-cash stock-based compensation expense of 0.9 million, totals a -9.7 million.

For non-GAAP adjusted EBITDA, you then add 3 5.1 million for the loss on extinguishment of debt, plus 2.9 million for the loss on disposition of the investment during the fourth quarter of 2003, resulting in EBITDA of 28.3 million for the quarter, or 25 cents per share.

Cash flow from operations totaled approximately 40.4 million for the quarter. Cash flow from operations less CapEx of 12 million during the quarter resulted in approximately 28.4 million in free cash flow for the quarter.

For the year, cash flow from operations totaled 117.2 million. Subtracting CapEx of 39 -- 35.9 million, yields 81.3 million of free cash flow for all of 2003. These amounts do not consider the $31 million Maypole (ph) payment in the fourth quarter of '03.

Our current backlog of work to be completed during the next twelve months is a little over $1 billion, which compares to 983 million in backlog as of our third quarter conference call. Backlog, once again, represents the amount of revenue that we expect to realize from work to be performed over the next twelve 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 accounts receivable, which we calculate by using the sum of current accounts receivable plus costs and earnings in excess of billings, less billings in excess of costs, divided by average revenues per day during the fourth quarter, totaled 83 days at December 31st of '03, versus 89 days at the end of the third quarter. Our DSO's at the end of the year were at the lowest level they've been in three years.

During the fourth quarter, we undertook a refinancing strategy which included the following.

One, the issuance of 270 million in subordinated convertible notes, which carry an interest rate of 4.5 percent on a convertible into our common stock at $11.14 per share.

And two, the closing of a $185 million credit facility that matures in 2008. That consisted of a $35 million revolver and a $150 million facility that can be used for letters of credit or for term B loans at our auction. The proceeds of these financings were used to pay off our $210 million senior notes and an associated (indiscernible) premium of 31 million.

As a result of these refinancings, we have reduced our interest rate on debt from 7.3 percent to 4.4 percent, for a net savings of approximately $8 million per year. We've also extended the maturities of our debt and obtained significantly relaxed financial covenants.

At year-end, we had 179.6 million in cash, and 32 million in available borrowing capacity under our $185 million credit facility. We had $97 million in letters of credit outstanding, primarily to secure our insurance program. And, since the end of the year, our cash position has increased to $207 million.

This very successful refinancing effort, combined with our reduction in DSO's, has resulted in Quanta being in a much stronger financial position going into 2004.

Concerning our outlook for the future, we project the revenues in the first quarter of 2004 will be in the range of 340 to $360 million, and that we will have a loss per share in the range of 4 to 7 cents. Our first quarter G&A expenses and operating margins will be negatively impacted by normal business seasonality and costs associated with our initiative to pursue government contracts.

For all of fiscal year 2004, we're forecasting revenues to be between 1.6 and $1.7 billion. Once again, this forecast does not include any potential upside related to increased spending on the US power grid, major fiber to the home initiatives, or potential awards under our new government contract initiatives.

We expect operating margins for the year to be between 4 and 5 percent. We expect average shares outstanding of about 116 million. And for those of you who are running forecast models, we project our effective tax rate for 2004 to be between 41 and 43 percent.

These assumptions would result in EPS between 20 and 30 cents per share. Also, we expect CapEx for 2004 to be between 40 and $50 million.

Looking forward, we will continue to focus on the application of our primary profitable capabilities, implementation of our proven business strategy, and marketing Quanta in growth areas. These continued efforts will ensure Quanta's position as the markets we serve recover. This concludes our formal presentation, and we will now open the lines to Q&A.

(OPERATOR INSTRUCTIONS)Sanjay Shresha, First Albany.

You guys have done a great job of releasing the DSO's. How low can that potential go, and what sort of expectations should we have in terms of the cash generation into 2004?

We're still in the process of pursuing some older receivables that we've ended up having to go into litigation to collect. And we're working on those -- I expect that we will collect most of those during 2004. Some of it could go over in 2005. But if we do that, our target for DSO's is about 75 days. I'd like to see it at that level. It hasn't been at that level in quite some time (technical difficulty).

That's great. Next thing on this tax rate here being actually a little bit higher towards your 41 to 43 percent, can you tell us a little bit more about the tax rate being actually up in the 40s instead of in the mid 30s to maybe in the high 30s?

That's just purely a calculated estimate based on where we think the pretax income is going to come out. We have -- what causes it to go that high is temporary differences. Not temporary differences, permanent differences. As a result of travel expenses, (technical difficulty) to our crews when they travel are not deductible, or a portion of them are not deductible. So, you have to actually pull that out of pretax income when you're calculating the tax rate. (multiple speakers)

Also, the $2 million sequential increase in your SG&A in the quarter, you said some of that is actually related to the legal fees. Can you tell us a more about what exactly was that related to?

It's professional fees related to some of the settlements of these accounts receivable. If you recall, the accounts receivable have spiked up back during the Telecom fall off. That's when our receivables really built up. And a lot of these have been tied up in court battles and are getting to the point where we're getting ready to go to court within the next couple months. And we also settled a couple other -- or are pursuing a couple other legal disputes during the quarter.

A couple more, if I may, real quick here. You guys have done a phenomenal job of bringing your SG&A down. One, is there actually a target for SG&A as a percent of the revenue over time? And two, with that ongoing focus on cost reductions, it seems like the margin pressure continues on the utilities side. But in a normalized environment, what could we sort of see as an operating margin out of you guys over, let's say, maybe next 24 months?

We strive to have SG&A at the 8 percent to 9 percent level. We think that's realistic in our industry.

We talk a lot about having 20 percent gross margins, 8 percent SG&A, with a 12 percent operating income. Those -- 12 percent operating income is something that's achievable, but I don't know that we're going to see those levels in the next 24 months. I'd have a goal of 10 percent operating income in the next 24 months.

One clarification along those lines. It does not take into consideration that we see a major uptick in the high-voltage transmission line, you know, refurbishment work. You don't really need to see that for you to actually get to that 10 percent kind of an operating margin, correct?

That's right. If we see some extraordinary spending in any of our markets, you can expect, maybe, to exceed that 10 percent. But what we need is our customers to return to normal spending levels. And I'm talking about levels pre-1998 levels. That's all we really need to achieve the profitability that we're talking about there.

Thank you so much, guys.

Alex Rygiel, Friedman Billings Ramsey.

John, can you talk a little more about your Quanta Government Solutions division? How many employees have you dropped into that unit, how soon are you hopeful to be awarded some revenues, and how large can that business be in a year or two?

Most of the employees, I think, we have maybe one or two employees that we've hired at this point in time. Most of the employees we have are on a contract basis awaiting award of business before we put them permanently on the payroll.

It's impossible to project when our first contract, or when or how large this group may be over the next year. It's certainly something that we're looking forward to, there's a lot of opportunity -- both in the telecommunications and the electric power side of our business.

The government is awarding a lot of gig B (ph) networking networks -- that's fiber to their military bases, as well as a lot of initiatives on military bases here in the United States. And of course there's always overseas opportunities as well. With the United States government paying in United States dollars.

Could you talk about margins within the government sector? Are they a little bit better than yours, a little bit less but cash flows are better, or less risk, can you talk a little bit about the profitability of that business?

There's different types of contracts when you work for the government. If it is a fixed-price contract, you can expect margins in the range of what we would normally get on our contracts. Then there's the cost plus business for the government. Those margins would typically be lower gross profits, but because you get to build in so much of your overhead cost, the operating income can become equivalent to our normal operating income. And in fact, we would anticipate that -- because our margins are lower in the Telecom and electric power business now, that the government margins might be even better than our operating income now.

Thomas Denslow (ph), Hamilton Investment Management.

I'm impressed by the amount of cash flow that you're able to generate, it seems like the fourth quarter was pretty good. Have you considered using some of that cash flow to be opportunistic in getting rid of some of your other debt? I'm thinking mainly of the 4 percents, which are underwater a little bit. Is that something you'd consider doing?

Certainly we look at all of our alternatives. There are a number of large projects that could come our way that would require significant amount of working capital. That would be our foremost use -- -- or preferred use of our capital -- is internal growth.

Then there are acquisition opportunities that are out there, that we look at quite often. Right now the industry itself is doing due diligence for us. But certainly, we're looking at other opportunities as well.

I should mention that right now our credit facility prohibits repayment of the old convert. So we can't use the cash to replay the old convert right now.

Thanks for that, I was actually going to follow up with that. Thanks a lot.

Pornog Peric (ph), Q Investments.

James, can you walk through the difference in cash for the 78 million and 930 and 180 in 12-31-03? And off that 180 million, how much is restricted cash? Is there LC related cash sitting on the balance sheet?

The 180 is really -- there's no restricted cash in that number.

Can you walk through how did get from 78 to 180? Because I thought most of your refinancing debt went out to pay the existing debt.

Well we actually had -- it did. But we also had $90 million at the end of the third quarter. So, the number might not have been 90 million, but there was an amount of cash at the end of the third quarter that was restricted -- not restricted, deposited as collateral for letters of credit. And that cash was freed up to us as a part of the refinancing.

I don't actually have (multiple speakers) off-line reconciliation of exactly what happened to the cash between the third and fourth quarter. (multiple speakers)

That's fine, I'll follow up. And in terms of your outlook for next year, your CapEx rose from 40 to 50. Is that something you expect to be the normalized levels, or is that something that's higher or lower than next few years? (multiple speakers) some kind of free cash flow numbers going forward.

We monitor our CapEx pretty closely and it's related to our revenues. We don't expect, in our budget, we don't have a great expansion of our revenues. So, I think the $40 million level is probably where we will be if our revenues don't climb significantly.

If we see significant revenue growth, through either the initiatives that we talked about, then you'll see CapEx going to the 50 million level.

And if you go back to the days of 18, 20 percent internal growth, you'll see CapEx exceed 50 million. Probably up near the $60 million level.

David Marsh (ph), Friedman Billings.

Just a couple of quick questions. Housekeeping nature. On the $2.9 million charge that you took in the quarter for the disposition of the fiber network, can you tell me where that hit the P&L, and just to get a sense of EBITDA for the quarter?

It flowed through the other income line.

And as we look forward -- you talk about 4 to 5 percent operating margins for '04 -- (indiscernible) model, that implies that one of two things is going to happen, either gross margins are going to gross (ph) sequentially year-over-year, or the SG&A, the raw number of SG&A expense is going to decline pretty significantly. Can you tell me what's baked into your assumptions to get to a 4 to 5 percent operating margin for '04?

Yes. We've made quite a bit of progress this year as far merging operations, cutting costs -- both above the gross profit line and below the gross profit. So I think John mentioned that we've reduced from 38 to 30 units this current year. So some of the cost is just an automatic savings, because those units that were closed during the year were a drag on both gross profit and G&A. So we will see some improvement from that.

And then, we have a drive on to improve margins in the electric utility business. And we think margins have gotten too low in the electric utility business, and throughout the Company are pursuing higher margins on new work. And trying to get pricing increases on old work.

Alta Via (ph), Sidas Investment Management (ph).

Jim, just a couple of questions -- first is -- what is your depreciation expectation for 2004? And just can you give me an idea of what your free cash flow generation would be at around the 20 to 30 cent from earnings?

CapEx should be about -- you ask for (multiple speakers) depreciation should be about 60 million. And the free cash flow level at the midpoint of both the ranges on CapEx and EPS should be somewhere around $100 million.

Okay. And then, just, touch on two things for me. The first quarter as a percent of the total year revenue, and obviously you have to wipe out any kind of ice storms or things like that, what is the first quarter in what you view now as a normal, seasonal period?

I've some of those numbers somewhere. First quarter typically runs somewhere between 20 and 21.5, something like that, in a normal seasonal pattern. 20 to 21.5 percent of revenues. Building was the -- the third quarter's typically our largest quarter. The fourth quarter is typically our next to largest quarter. And then the third quarter is second to last, I guess is a good way to put it.

You said that third quarter's typically the next? Largest to typically the fourth quarter, or no?

Largest typically is the third quarter.

Followed by the fourth, and then the second quarter is our third-largest quarter.

It goes 3,4,2,1. In size.

And then, can you talk on the fiber to the home opportunity? Obviously, Dicom (ph) had a big number and some of the Companies there are getting some business. You mentioned that you would expect to possibly get some business there. But it's not in your forecast.

Can you just talk a little bit about that situation, and maybe what are some of the things we're looking for this year?

Dicom got awarded a portion of that, and there's a significant portion that was not awarded, and is not going to go with the national initiative, they're going to go on a more local level. At our subsidiary level, we will compete for that work with our peers.

So we're hopeful we might get something. And again, as we said, additional CapEx industry should bring up margins year-over-year, just by the growth of the segment -- CapEx in the segment, excuse me.

Phil Dumas (ph), Geo Capital Management (ph).

Most of my questions have been answered. You made a comment about strengthening the balance sheet this year. Can you be a little more specific on that, given your comments about debt paydowns?

The comment that I made, I think, was that we strengthened our balance sheet in 2003 and are going into '04 with a much stronger balance sheet then we had at the end of the prior year. The strengthening of the balance sheet is that we have a lot more cash than we had before, we have lower interest rate debt than we had before, and longer maturities than we had before.

(indiscernible) cash flow in 2004, we have lower net debt.

And our DSOs are lower, too.

Can you give us some expectation of acquisitions -- or larger projects on the working capital side -- and how much you would need for those?

Would you repeat that question?

I'm trying to get a sense of where year-end cash could be, given that projects that you talked about. How much working capital you would need? Where do you guys expect cash to be at year-end? If, say, 50 percent of the projects that you see out there, you get.

60 percent of the projects that we see out there wouldn't be a realistic goal. What are out there are some very large project that might take significant working capital. But we should get that paid back within a quarter, or there abouts. So I think James's projection -- if our revenue is at the levels he talked about, the cash flow would be approximately $100 million for the year.

Yes, but the current projection that we got projects that cash would go up. What we're saying is that if we have large -- some of the larger projects, either on the transmission grid, in the fiber to the home area, or in the Quanta government solutions area, it would require working capital to start those projects up. But that's not in the forecast that we've given you, so the forecast that we're giving is showing that cash is going to grow.

Thanks.

Mark Bitdishof (ph), The Boston Company.

I was just wondering -- if you look at your guidance, looks like your guidance for the first quarter is below the first call by about 11 to 14 cents, due to the startup costs in government. And then the rest of the year, looks like it's on track or above first call. I was wondering if you could quantify, are these onetime startup costs that only effect the first quarter, or can you kind of quantify what these costs are and when they hit?

Well, the costs that we built into the first quarter aren't a huge number. That number is probably 2 to $3 million, somewhere in that range. But what's really happening is that the margins in the first quarter are expected. The margins in the first quarter this year, when you look at last year for instance, are expected to be about the same as the prior year. But revenues are expected to be about 20 million lower than they were in the prior year due to a variety of reasons. And that consists of poor weather conditions and certain markets in January, and we don't know what to expect in February and March. And postponement of projects by certain utilities. So our revenue, I think our revenue forecast is probably lower than the two analysts that are following us through first call. For the first quarter. And our margins might have been a little bit lower, plus increased overhead as a result of this government solutions initiative.

So the government's 2 to 3 million, and that's a onetime thing in the first quarter?

It might continue on, because we don't really know when we're going to have revenues coming in to offset some of those costs. So, some of the costs could continue.

Okay. Why would they not continue? Wouldn't they continue and then eventually get revenue that offsets them, or would they eventually stop for some reason?

Yes, they would, it's just that the cost is not mitigated by revenue. We do have some cost going forward, but the larger costs for this initiative are going hit the first quarter. And then it should drop off after that.

Because what we're spending the money on is professional fees, systems development, policy and procedure development, proposal development -- those types of things that are costs that we haven't had before in our G&A. But those costs are onetime costs that should be lower in the future quarters.

Toby Sommer, SunTrust Robinson Humphrey.

Just had a question. You may have touched on this earlier, I missed the beginning part of the call. I'd like to know what you're hearing from your other Telco customers regarding fiber to the home, the larger R box (ph), and what your expectation is and what you have heard in conversations from them?

Of course, Verison is the leader there, and they said they're going to try to get by a million homes this year. And other more -- there's been no concrete indication of what they're going to do. Both BellSouth and FCC (ph) I think are kind of (technical difficulty) they're doing things at a lower level, they haven't indicated what they're going to do. And I think they're more waiting for regulatory relief, as horizon has decided to take a step forward and just go ahead and spend the money.

Municipalities keep looking at it, although there's been kind of just a hit and miss here and there, there's a lot of chatter and a lot of things happening, but nothing very, very concrete with the exception of Verison at this time.

Just as a follow-up, I don't know if you talked about this earlier in the call, could you give me your top Telco customers and what they were as a percentage of revenue if they ranked?

Yes I can. I will give them to you for the year 2003. Top Telco cable customers was Comcast at number 6, Adelphia at number 7, Ericsson was number 10, Alltel was 13, Century Telephone 14, AT&T 16, is that far enough for you?

David Lucia (ph), Front Point Partners (ph).

Going through your last quarterly release, you talked about amending the credit facility in November of 2003. And the there was talk about initiating a new credit facility, I think, $200 million. Was that completed?

Yes. That's the $185 million credit facility I discussed earlier.

Great.

Mike Barone (ph), Acila Capital (ph).

Just to verify, you had 85 million available on the credit facility?

No. The amount available on the credit facility is 35 million. We have a revolving credit facility for 35 million, we've drawn the other 150 through a combination of drawdown and letters of credit.

And as far as the new facilities go, can you share any of the specifics on the covenants (indiscernible)?

The covenants, I mean, it's a filed agreement with the SEC, so the covenants will vary from quarter-to-quarter. But I mean, It's got the typical covenants, the fixed charge ratio, the leverage ratio -- and the covenants vary from one quarter to the next depending upon our forecast that we shared with the bank.

Finally, I caught just two of the top five utility customers. Can you list again, if you don't mind?

Top five customers for the year 2003 was -- Puget Sound Energy, Southern California Edison, Central Point Energy, San Diego Gas and Electric, Intermountain Rural Electric.

A follow up from Pornog Peric.

Any update on the Adelphia case, I actually noticed the (indiscernible) plan for (indiscernible) yesterday. Any update on the receivables from Adelphia? Are you going to cash out?

There hasn't been much change in that, since the last quarter, from our perspective, although we have received an increasing amount of -- number of offers and an increasing percentage being offered for the receivables.

The mean from third parties?

From third parties, right. But the main thing to say is that because of the disclosure statement was incomplete, and doesn't attachment of the exhibits, it's impossible for us to determine exactly what the effect of the plan is.

But you have mechanical liens on those, right?

That's right.

You should be paid in full. Unless you get pretty decent offers from third party, why would you want to take a substantial discount, I guess?

That's what we think. That's why we've taken this approach. I mean, we've had mechanics liens and we think we will get paid ultimately.

Management, please continue with any closing remarks that you would like to make.

Well, I would just like to thank all of you for participating in our fourth quarter conference call. We appreciate your questions, and ongoing interest in Quanta. Thank you and we will see you next quarter, if not before.

Thank you. Ladies and gentlemen, this concludes the Quanta Services fourth quarter earnings conference call. If you would like to listen to an audio replay of today's conference, please dial into 303-590-3000 and use the access code of 571359. Once again, that phone number is 303-590-3000 and use the access code 571359. We thank you for your participation, you may now disconnect. Thank you for using AT&T teleconferencing.