Quanta Services Inc (PWR) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Quanta Services' third quarter earnings conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Friday, November 4, 2005. I would now like to turn the conference over to Ken Dennard with DRG&E. Please go ahead, sir.

thanks, mary, and good morning, everyone. we welcome you to the quanta services' conference call to review third quarter 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 or fax distribution list and receive future news releases on Quanta, or if you experienced any technical difficulties today and did not receive your e-mail or fax, please call our offices at DRG&E. That 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 then go to the Investors section of Quanta's website. In addition, there is a telephonic recorded instant replay that will be available for the next seven days, 24 hours a day, and the dial-in information is in this morning's press release.

Remember, please, that information reported on this call speaks only as of today, November 4, 2005. Therefore, you are advised that time sensitive information may no longer be accurate at the time of any replay listening. Also, this conference call will include forward-looking statements intended to qualify for the Safe Harbor from liability established by the Private Securities Litigation Reform Act of 1995.

Forward-looking statements, include but are not limited to, statements related to projected revenues and earnings per share growth, and other financial and operating results, capital expenditures, growth in particular markets, strategies, expectations, intentions, plans, future events, performance, underlying assumptions and other statements that do not relate strictly to historical or current fact.

Actual results may differ materially from those projected in such forward-looking statements, and please refer to Quanta's Annual Report on Form 10-K for the year ended December 31, 2004, which was filed with the Securities and Exchange Commission.

For additional information concerning factors that can cause actual results to differ materially from those in these forward-looking statements. In addition, following the question-and-answer session of today's call, I will highlight certain risks that could cause Quanta's results to materially differ.

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

Good morning, everyone, and welcome to Quanta Services' third quarter conference call. To start the call this morning, I will provide a general overview of the quarter and provide a detailed discussion of our telecommunications and cable TV operations. My remarks will be followed by a review of our electric power and gas operations for the quarter by John Wilson, President of Quanta's Electric Power Gas Operations. Then James Haddox, our Chief Financial Officer will review the quarter's financial results. Ken Trawick, our President of Telecommunications and Cable TV is present for questions. After our prepared remarks, we will open the call for questions.

Today, we announced the results for the third quarter of 2005. Over the quarter, we saw margins increase by more than 270 basis points and revenues grow by 13% compared to the third quarter of '04. When compared to last year's third quarter net income more than tripled. Our revenues for the quarter were approximately $523 million, compared to $439 million in the second quarter of this year, and $463 million in the third quarter of 2004.

This increase is due in part to work resulting from the recent hurricanes. Although we actually did only $4 million more in storm-related work in the third quarter of 2005 than in the third quarter of 2004. Also contributing to our growth is our ability to expand existing customer relationships to secure additional work. We are proud of our accomplishments in the third quarter and believe they reflect Quanta's large potential for growth under an improving economy, the improved financial health of our customers and, eventually, the new energy bill.

When divided by type of customers, our revenue were as follows: 69% from electric and gas utilities, compared to 68% in the third quarter of last year. 13% from telecommunications and broadband cable customers, compared to 15% in the same quarter last year. And 18% from ancillary services, compared to 17% in the third quarter of '04.

Our largest customer for the quarter made up only 5% of our revenues. Our top 10 customers for the quarter equaled 36% of our total revenues, and our top 20 customers made up approximately 49% of revenues.

At the end of the third quarter, our employee count was 11,572, up slightly from 11,161 at the end of the second quarter, and 11,122 at the end of the third quarter of '04.

Our efforts to help utilities recover from the hurricanes in the third quarter are probably obvious, or most recognized, portion of our revenues, however, it is important to note that when we omit storm-related work revenues from electric power and gas utilities increased by 18% over last year's third quarter. In all, storm work provided approximately $74 million of revenue, or 14% of total revenues.

My point is that while storm work contributed significantly to our financial results, other parts of our business experienced significant growth. The tragedy of hurricanes Katrina and Rita, and now Wilma, is overwhelming, and our hearts go out to those impacted by those devastating storms. While we cannot undo the damage done by wind and water, we consider it our duty to apply our expertise in storm restoration to help restore the power and telecommunications to the affected areas.

I want to personally thank all of our team members who have contributed to the restoration work. From the linemen, who slept in trucks and tents and ate MREs, to the supervisors, who managed the crews, to the support staff, who helped coordinate logistics to get them there and get them back safely. I want to publicly thank all of you for the hard work and for being such great representatives of Quanta Services under such trying circumstances.

It is the hard work of our employees throughout the nation that makes Quanta unique. Our employees often go unrecognized for their efforts. But the events of the past several months reveal a strong, dedicated, compassionate, and committed workforce.

Now I will review the performance of our telecommunications and cable TV operations. These industries, like the power industry, continue to be impacted by regulatory developments on both the state and federal level. Since Ken Trawick's update in last quarter's conference call, Texas has become the first state to pass legislation that allows video service providers to get one video franchise license for the entire state. This will dramatically reduce the time and money required for a big phone company to offer TV service in more than one Texas city.

What does this mean to us? It means that new players in this industry, such as SBC and Verizon will be able to move quickly to deploy new broadcast video services to Texas cities. Since this ruling, SBC has announced that it will launch its U-Verse video services in trials by the end of the year.

There have been federal regulatory updates as well. In late June, the Supreme Court ruled that cable operators can refuse competing internet providers access to their network infrastructure, meaning they do not have to share their lines. This is expected by industry analysts to spur broadband investment and access options.

Also, the FCC unanimously approved two large telecom mergers earlier this week, SBC Communications will buy AT&T, and Verizon will buy MCI. While this does not directly impact our business, we believe, with this approval behind them, both Verizon and SBC will be able to increase their focus and their long-term strategic initiatives in the traditional wireless, DSL, and fiber areas of their business.

Our telecom backlog is up 14% compared to last quarter. This is due, in part, to our ability to better predict fiber-to-the-home, or FTTH, work from our customers such as Verizon and SBC as they announce and award work for 2006. Recent announcements lead us to believe that 2006 will reveal a more aggressive, competitive FTTH environment.

Just last week, both Verizon and SBC announced growth in revenues. Verizon attributes its record broadband growth to FiOS service. It also reaffirmed this it is past 2.5 million customer locations in 15 states and is on track to reach three million by year end. It also announced that it plans to pass an additional three million homes and businesses with FiOS next year.

Also, Century Telephone announced that increased demand in broadband and fiber transport services fueled its improved third quarter financial results. With the completion of SBC's residential field trial of Project Lightspeed, we expect the Company's fiber-to-the-node initiative to gain momentum as the year comes to a close and into 2006. In fact, SBC expects to have deployed the necessary fiber to pass two million homes with Lightspeed service by year end 2005.

Quanta has participated in the proposal processes for this initiative by SBC. We expect work to be awarded later in the year and into 2006. Bell South is also getting more vocal about its fiber to the curb initiatives. It announced that it expects to accelerate deployment following, and I quote, recent positive regulatory and court rulings, unquote. It plans to deploy fiber to almost 60% more locations in 2005 than it did in 2004.

We also announced in the third quarter that we have become a member of the Corning cable systems Total Access Program. Membership in the program enables our customers to receive up to a 10-year extended product warranty from Corning on complete Corning fiber-to-the-home solutions when installed by Quanta.

These developments and announcements by our customers make us believe that there will be no relenting on the industry's commitment to drive fiber deeper into the network to homes and businesses. As is normal practice, we continue to watch oil and other commodity price rises and assess any potential impact to our customers. While commodity pricing does not typically have a direct effect on our business, there's potential for related project delays, siting issues, and engineering challenges.

This is simply the nature of our business and we continuously monitor and anticipate potential issues. Activities in our cable operations continue to be flat, and we do not expect significant developments in this industry in the near future.

We continue to be optimistic about what the future hold for Quanta. We have a secure leading industry position, exclusive service offerings that give us a competitive advantage.

As the power and telecom industries make regulatory and technological advancements, Quanta is poised to leverage these developments to help rebuild our nation's transmission system and push fiber deeper into the network.

Now, I'll turn the call over to John Wilson, who will discuss recent developments in our electric power and gas operations.

Thanks, John, and good morning, everyone. To say that our third quarter was an adventure would be an understatement. History was made throughout the three months. The President signed a new energy bill and three hurricanes swept through the southeast, leaving millions of customers without power. Many lost more than just power, they lost their homes, their jobs, and in some cases, their family. It's been an eventful quarter for our country.

Our employees not only responded to help restore power and put up new infrastructure following the hurricanes, they responded to help people, not simply because it was their job, they were driven by compassion and concern and fueled by commitment to get the job done. I also want to thank our employees, thank you for dropping what you were doing, leaving your homes and your families and working so incredibly hard in less than ideal circumstances.

Many of you had damage to your own homes, yet you continued to work to help others. As John stated, you went above and beyond if call of duty and we recognize and commend you all for a job well done. To those of you that continue to provide storm restoration services, keep up the good work. While not all utilities had the floods, the wind, or the damage to their systems, all are feeling the effects of this hurricane season, and it takes the effort of a whole industry to make these restoration efforts happen.

Appreciation also goes out to our customers and the other utilities throughout the nation who supported this humanitarian effort. They put their own projects on hold, released our contract crews, and in many cases released their own crews to supplement the post-hurricane restoration efforts. I commend you for these unselfish efforts.

At its peak, our restoration team consisted of more than 2,000 line personnel from all corners of North America. These individuals worked to clear vegetation, remove downed power and phone lines, repair damaged infrastructure, and rebuild phone and power transmission and distribution systems where necessary.

Rita not only demonstrated our ability to respond to customers, but it also put Quanta's emergency preparedness plan into action. The hurricane was originally projected to make landfall at Galveston, then progress to directly to Houston. On Tuesday, September 21, we put our plan into action to ensure the security of our systems, our employees, and our business. The plan was successfully implemented, even with the shift in direction of the storm, Quanta was prepared and protected.

The good news is that most of the power has been restored, but even with the power back on, the work to truly repair the system has just begun. In fact, Entergy has estimated damage from Hurricane Katrina to be in the range of 750 million to 1.1 billion. Damage from Rita to the Entergy system alone may reach 550 million.

Obviously; these numbers change as utilities further evaluate the damage and determine the method of repair or replacement. For Entergy, Rita alone affected more than 340 transmission lines and 430 substations. More than one million customers experienced power outages as a result of Hurricane Katrina ,and more than 760,000 customers as a result of Hurricane Rita. Unfortunately, the hurricane season did not end with Hurricane Rita. Both Rita and Katrina were outdone by last week's Hurricane Wilma. Six million customers were left without power in the wake of this hurricane. And Wilma is now on record as the largest hurricane of the season.

Our crews remain in action throughout the Gulf Coast region to help customers, like Florida Power & Light, Entergy, CenterPoint repair their systems. While the hurricanes may not be national news anymore, it will take quite a while for our communities impacted to recover. We are committed to aiding with this gigantic effort.

I want to reemphasize a very important point made by John Colson earlier. If you remove the storm restoration work from our revenues, our revenues for traditional power and gas work alone, grew by 18% in the third quarter over last year's third quarter. We believe this exemplifies the improving financial health of our industry. And the word is spreading. An article in Electric Light & Power magazine just last week that quote, Wall Street Has Invited Utilities Back To the Investor Party, end of quote.

In all, with respect to our electric power and gas customers, spending is increasing, balance sheets are strengthening, net income is increasing, and there is overall optimism about the future. This resulted in an increase of backlog throughout the quarter compared to the same quarter last year, and we expect this spending to continue as utilities begin to take advantage of incentives in place through the new energy bill to upgrade their systems.

Just last month, the Electric Liability Council of Texas announced that they expect to spend roughly 2.8 billion of transmission upgrades over the next six years. We continue to see increased opportunities to apply our proprietary Energized Services to help customers overcome budget and outage challenges. This past quarter, we started a project in Africa for a non-utility customer.

Over the span of six months, we'll add a second circuit on an existing transmission line supplying power to new oil wells in the region. By utilizing our Energized techniques, the customer will avoid having to take an outage and saving millions of dollars a day. While this project is relatively small, it represents a significant opportunity for our Energized business to pursue international business and illustrate to potential non-utility customers the benefits of Energized work.

Additionally, during the quarter, we helped two utility customers avoid taking costly nuclear station outages by providing emergency Energized maintenance services. As a result of this work, we are in discussions with these customers about doing additional Energized work. Also during the quarter, we held our annual utility perspectives symposium. Even with Hurricane Rita making landfall two days prior, the meeting was a great success.

It brought together utility executives and industry thought leaders to address such issues as the new energy bill, investment in the grid, asset management, safety and other items impacting the industry overall.

In all, we are confident about Quanta's market position and ability to leverage select opportunities in the near and long-term. Our customers view us as a strategic partner that can help them plan and design their infrastructure to ensure power delivery for the future.

They rely on us for our expertise and resources in an emergency situation, and they look to us for cost-saving options to repair and maintain their infrastructure. These facts make Quanta unique in the industry. I believe we will see these trends intensify over the next year or two as the energy bill takes root and starts to drive change in the industry.

Now I would like to turn the call over to James Haddox, Quanta's Chief Financial Officer. James?

Thanks John, and good morning everyone. Today, we announced revenues of $523.3 million for the third quarter of 2005, compared to $463.1 million in the prior year's third quarter, reflecting 13% internal growth. This increase in revenue has resulted from improved spending patterns by our customers and most of the industries we serve, and breaks down as follows: Revenues from electric power and gas customers increased 15.3% in 3Q '05 versus 3Q '04. Revenues from telecom and cable TV customers increased 5.1% quarter-over-quarter, and revenues from ancillary customers increased 11% in 3Q '05 versus 3Q '04.

Higher than anticipated storm restoration services resulted in our revenues beating our previous forecast range of $460 million to $490 million. However, as John said, revenues from storm restoration services were very comparable in the third quarters of 2004 and 2005, and, therefore, did not account for a significant portion of our quarter-over-quarter growth.

Our net income attributable to common stock for the quarter was $12.9 million, or $0.11 per diluted share for the third quarter of 2005, compared to net income of $4.2 million, $0.04 per share in the third quarter of 2004. Last year's third quarter results were negatively impacted by a pre-tax insurance charge of approximately $8.6 million, which was the result of higher than anticipated insurance claims development during last year's third quarter. This unusual charge did not reoccur in the third quarter of 2005.

Our gross margins of 15.3% for the third quarter of 2005 compared to 12.6% for the third quarter of 2004. Excluding the charge for insurance expense described previously, our gross margins for the third quarter of 2004 would have been 14.5%. The increase in margins in the third quarter of 2005 over the third quarter 2004, would be the improved spending patterns by our customers resulting in improved margins in all of the primary industries we serve, despite experiencing significant increases in fuel prices and certain other operating expenses.

Our G&A expenses were $4.9 million for the third quarter of 2005, compared to $44.3 million in the third quarter of 2004, and $43.9 million in the second quarter of '05. Our G&A expenses were higher sequentially and quarter-over-quarter, primarily due to higher salaries and benefits costs due to increased personnel, cost of living adjustments, and higher performance bonus costs, higher professional fees associated with bidding activity and ongoing litigation, and higher bad debt expense, primarily related to the settlement of one long-term receivable.

EBITDA was $80.4 million for the first nine months of 2005. EBITDA is defined as earnings before interest, taxes, depreciation, amortization, and non-cash compensation expenses. The amounts making up EBITDA of $80.4 million for the first nine months of 2005 were net income of $11.1 million, but income taxes of $10.7 million, plus depreciation expense of $41.9 million, plus amortization expense of $300,000, plus non-cash compensation of $3.6 million, net interest expense of $12.8 million.

Interest income increased from $743,000 in the third quarter of' 04 to $1.9 million in 3Q '05, primarily due to higher average investment cash balances and higher average interest rates.

Our tax rate for the third quarter of '05 of approximately 52% is lower than we expected, due to our higher than expected pre-tax income levels for 3Q '05 and the remainder of 2005, reducing the effects of state taxes and certain non-deductible expenses. Cash flow from operations for the quarter was a negative $10.9 million. Cash flow from operations left capital expenditures of $10 million, or free cash flow, was a negative $20.9 million for the quarter.

Cash flow from operations was negatively impacted during the quarter by increased working capital requirements as our revenues increased by $84.1 million over the second quarter of this year. Although our operating performance during the quarter exceeded our expectations, our working capital requirements were higher than expected due to the impact of storm restoration services that were performed late in the third quarter. Year-to-date, cash flow from operations through September 30, 2005, totals a negative $1 million. Subtracting year-to-date CapEx of 38.9 million deals a negative 39.9 million of free cash flow for the first nine months of 2005. We have expect this trend to reverse substantially by year end and we'll discuss this later in the outlook portion of our presentation.

Our day sales outstanding, or DSOs, which we calculate including current accounts receivable plus cost and earnings in excess of billings, less billings and excessive costs were 86 days at September 30, 2005 versus 85 days at June 30, 2005 and September 30, 2004. We expect DSOs to decrease slightly by year end.

At quarter end, we had $224 million in cash, and we had $134.7 million in letters of credit outstanding. Our current backlog of work to be completed during the next 12 months continues to be at a record level of approximately $1.27 billion, which compares to $1.2 billion in backlog as of second quarter conference call. Our increase in backlog came from higher backlog in almost all of the industries we serve. Backlog at this time last year totaled $1.07 billion. This is the third consecutive quarter that our backlog was increased.

Backlog represents the amount of revenue that we expect to realize from work to be performed over the next 12 months on contract, including estimates of work under long-term maintenance contracts and new contractual agreements on which work has not yet begun.

Concerning our outlook for the future, we project that revenues in the fourth quarter of 2005 will be in the range of $450 million to $480 million, and that EPS will be in the range of $0.06 to $0.08 per share. We expect operating margins for the fourth quarter to be between 4% and 5%. For additional guidance, we're projecting our tax rate for the fourth quarter to be approximately 50%, which is equal to our tax rate for the nine months ended 9/30/05, and our diluted share count we expect to be about 117 million shares.

We expect that we will end the year with capital expenditures of about $44 million for all of 2005. Regarding cash flow expectations for the year ended December 31, 2005, if we use the mid-point of our revenue and earnings forecast range for the fourth quarter and assume that DSOs are at 83 days, as they were at December 31 of '04, we should produce approximately $85 million in cash flow from operations for all of '05, while experiencing approximately 11% internal revenue growth for the year.

However, any material variances between our forecasted assumptions and our actual results would affect our cash flow projection for 2005. This concludes our formal presentation and we'll now open the line for Q&A. Mary?

Thank you. Ladies and gentlemen at this time we will begin the question-and-answer session. [OPERATOR INSTRUCTIONS] One moment, please, for the first question. And our first question comes from Sanjay Shrestha with First Albany. Please go ahead.

Great, thank you, good morning, guys. First of all congratulations on a good quarter here. The question is -- looks like even if you exclude the storm-related stuff your margin's improving pretty dramatically year-over-year, are you really starting to see the pricing get better in the industry? We've been talking about that for some time, and should we expect that trend to continue and even get a lot better going into 2006 now with the new energy bill and can you talk about that a little bit more?

Yes, and thank you for the compliment on the quarter. The customers throughout our industry, the telecom and electric, power, and gas are increasing their spending as they're having projects on fiber-to-the-home on the telecom side, and as the financial health of our customers improve on the electric power and gas side. So as spending improves, they're taking some of the excess out of the market, therefore, prices will rise and we are hopeful that this trend will continue through '06 and '07.

Okay, just a follow-up on that then, so with the expected work that needs to be done for the Katrina, Rita, and also maybe some incremental work on the Wilma, that sounds like a pretty big number, do you also see that will have an incremental benefit on the margin front going into '06 time frame, and, two, with the whole dynamics on the rising interest rate and maybe utilities also having to spend on some emission-related stuff, how do you see that impacting the CapEx outlook for '06? Thank you.

Yes, certainly, after the lights are on, there will be a lot of additional work to be done on the utilities affected by the hurricanes. There are some things that can negatively effect our utility customers, the price of natural gas is one, interest rates, certainly, is another.

So, we think that there -- the utilities are going to be able to pass on the raise in natural gas prices to their customers. And so it shouldn't be a significant downturn, but there are some things that could affect our utility customers going forward. We are pretty optimistic that spending is going to increase, continue to increase back to normal levels, and, particularly, with the new energy bill, that's going to give the utilities some incentives to repair the nation's grid system, transmission grid system that has been needing repair and maintenance for quite some time.

Okay, great, thanks a lot, guys.

Our next question comes from Mike Barrone [PH] with Acala [PH] Capital. Please go ahead.

Hi, can you guys go, just tell me who your top five utility customers are?

Yes, top customer was Puget Sound Energy, followed by CenterPoint Energy, Southern California Edison, Entergy Services, and American Electric Power. That's the top five.

Okay, great, thank you.

Thank you, your next question comes from Joanie Jensen [PH] with McMahan [PH] Securities. Please go ahead.

Hi, can you discuss a little bit about industry factors such as consolidation and what you see happening over time, and do you see yourself as potentially acquiring additional companies, or is there a possibility you could become a target?

Well, we have been very inquisitive over our entire history except for the last few years. We are always, opportunistically, looking at acquisition targets. We will be making acquisitions in the future, and, I think, there will be further consolidation in our industry. Certainly, it's still a highly fragmented industry. But something that probably will impact us in our revenues is that utilities are going to be -- be acquisitive, as well, acquiring each other and forming larger service territories, and, typically, when that happens, they increase the amount of outsourcing that they do, which has a positive impact on our revenues.

Do you see yourself as a potential target?

I wouldn't have a comment on that at all. Impossible to tell.

Okay, thank you very much.

Thank you, your next question comes from Chase Becker with Credit Suisse First Boston. Please go ahead.

Good morning, my main question is in regards to -- you touched a lot about the third quarter and the impact of the hurricanes, but going forward, what's the outlook on the fourth quarter in terms of the revenues and the bottom line, and how do you see the profitability of these projects in comparison to your normal work?

We have -- we have approximately $30 million in backlog relative to storm work for the fourth quarter.

Okay.

I think that's about a $10 million increase in what we had in backlog for the third quarter of last year quarter, it's not a real significant effect on us in a year-over-year manner.

Okay, and then one other question. You touched on the telecom cable backlog growth of 14%, and I realize aggregate you're up 19%, can you touch on the electrical utility and ancillary?

Yes, backlog -- backlog for the third quarter of this year compared to the second quarter, that's what you're asking increase in backlog?

Correct.

It was up 4.5% on the utility and gas side and it's up 3.4% on the ancillary side.

All right. Perfect, thank you very much.

Thank you, your next question comes from Alex Rygiel with Friedman, Billings, Ramsey. Please go ahead.

Thank you, James. Could you actually give us the percent of total for backlog by customer segment?

Percent of total backlog?

Or the dollar?

Yes, I can give you the dollars.

That's fine.

you should also explain --

I will. I mean, I wanted to followup on that last question, that you typically won't see a large increase in backlog from the third quarter to the fourth quarter because of the seasonality of our business. We typically don't see, when I'm talking about a 4.5% increase on utility and gas and a 3.4% increase on ancillary, you typically don't see large increases in backlog going from the third quarter to the fourth quarter. But the utility and gas backlog for the nine months -- let me back up. As September 30 is 867.1 million for utility and gas, 228.0 million for telecom, and 176.3 million for specialty. Now, let me -- let me also caution you guys that these are estimates, and these are not -- these are not precise numbers because many times we're doing joint trench work, where we're doing telecom, we're doing cable, we're doing electric utility and gas all in the same trench. So when it comes to trying to break it down by industry, we do the best we can, but these numbers are not precise.

James, with regards to the storm revenue, I know last year on your third quarter, you mentioned that the storm revenue represented 45 million, but this year you're stating that third quarter of this year of 74 was flattish to last year.

The number you're picking up is the incremental number. You know, we were trying to figure out how much incremental work because you have to remember when you go through and look at storm work, all storm work is not additive to our revenues because we're pulling crews off of jobs that they're currently doing to send them to go into a storm restoration area.

So there's an incremental amount of revenues you get from storm work, primarily because the guys are working a lot longer hours and seven days a week when they go into a storm area, rather than the traditional job that they're in.

That's a guess, when we tell you what incremental revenues are it's difficult for us to actually calculate how much the guys would have earned if they hadn't been working on a storm. But, intuitively, the way you can think about it this year is that the incremental amount of work was less this year than it was last year because our guys are working more this year. Our revenues are up, they're working more, so the incremental boost, if you had an equal amount of work year-over-year, the incremental boost we got this year was less than it was last year.

Okay that's helpful. With regards to your Corning Total Access Program, is it a requirement to be a member of this to work for Verizon or SBC?

Alex, this is Ken Trawick. No, it's not a requirement.

So how does that help you from a competitive advantage standpoint?

Both Corning and us will -- one of the features of this program is a joint marketing piece to it. We'll be able to go to potential customers, it's a brand new program. We'll be able to go to potential customers in the future and because we are a part -- we're partners with Corning, we'll be able to offer new customers in the future extended warranty that they would not be able to get if they don't use a TAP partner.

Two more questions, with regards to your free cash flow comments. Cash flow of 85 million less CapEx of 44 million derives operating cash flow of 41 million, correct?

Yes, that's right. Free cash flow.

Free cash flow, and do you have any receivables with Entergy New Orleans?

No our receivables are with Entergy Services, the parent company. We may have done a little bit of work for Entergy New Orleans, but that's -- we don't think that's any significant amount, and we don't envision that there's any problems there. Our contract, though, is actually not with Entergy New Orleans.

Did I hear your mention that you had some expense associated with bad debt from one receivable, which customer was that?

It was Enbridge. It's a receivable that we've had for, we've had on the books related to a job that occurred, probably, three years ago, and we went through mediation and settled the receivable and incurred a bad debt expense as a result of it.

How big was that?

That portion of the bad debt expense was about 600,000.

Great. Thank you very much.

Bad debt expense, overall, for the quarter was about 1.2 million. And that was scattered amongst five or six other customers.

Thank you.

Thank you, ladies and gentlemen, if there are any additional questions, please press the star key followed by the one at this time. [OPERATOR INSTRUCTIONS] Okay, management, I'll turn the conference back over to you for any closing comments.

I would like to thank everyone again for your participation in our third quarter conference call. We appreciate your questions and ongoing interest in Quanta. Now I will turn the call back over to Ken Dennard who will close our conference call with some final disclosure items. Ken?

Thanks, John. The forward-looking statements made during this call can be affected by inaccurate assumptions and by a variety of risks and uncertainties, including, among others, quarterly variations in operating results, due to seasonality and adverse weather conditions, adverse changes in economic conditions in relevant markets, the ability to effectively compete for market share, beliefs and assumptions by about the collectability of receivables, the inability of customers to pay for services, financial distress of Quanta's casualty insurance carrier that may require payment for losses that would otherwise be insured, liability for claims that are not self-insured, or for claims that Quanta's casualty insurance carrier failed to pay, potential liabilities related to occupational health and safety matters, estimates relating to the use of percentage of completion accounting, dependence upon fixed-price contracts, rapid technological and structural changes that could reduce the demand for services, the ability to obtain performance bonds, cancellation provisions within contracts, the replacement of contracts as they are completed or expired, the ability to effectively integrate the operations of subsidiaries, retention of key personnel and qualified employees, the impact of a unionized workforce on operations, and the ability to complete future acquisitions, rapid growth outpacing infrastructure, potential exposure to environmental liabilities, requirements related to government regulation, the ability to meet the requirements of the Sarbanes-Oxley Act of 2002, the cost of borrowing, availability of credit, debt covenant compliance and other factors affecting financing activities, the ability to generate internal growth and the adverse impact of good will impairments. Should one or more of these risks materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied in any forward-looking statements.

You are cautioned not to place undue reliance upon these forward-looking statements, which are current only as of today. Quanta disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

For more detailed discussion, it that's possible, of these risks and uncertainties and assumptions investors are urged to refer to Quanta's Annual Report on Form 10-K for the year ended December 31, 2004, and other reports filed with the Securities and Exchange Commission. That's the end of the conference call, thank you for joining us this morning.

Thank you, ladies and gentlemen, that concludes today's teleconference call. If you would like to listen to a replay of today's conference, you may dial in at 303-590-3000 followed by the access code of 11042851, and then followed by the pound sign. Once again that number is 303-590-3000 and followed by the access code of 11042851 and then followed by the pound sign. Thank you again for your participation in today's conference and at this time you may disconnect.