MasTec Inc (MTZ) 2005 Q1 法說會逐字稿

Good day and welcome to MasTec's May 11, 2005, first quarter earnings conference call. Let me remind the participates that today's call is being recorded, and at this time I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Please go ahead, sir.

Good morning. Welcome to MasTec's Q1 2005 earnings conference call. With us today are Austin Shanfelter, MasTec's President and Chief Executive Officer, Bob Campbell, Executive Vice President and Chief Financial Officer, and Michael Nearing, Executive Vice President and General Counsel. The format of call will be opening remarks by Austin, followed by a few comments from Bob on the finances. Financial discussions will be limited to GAAP-based financial items and their derivatives. These discussions will be followed by a question-and-answer period and we expect the call to last about an hour. Now I'd like to turn the call over to Michael Nearing. Mike?

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

These forward-looking statements are based on MasTec's current expectations and are subject to a number of risks, uncertainties and assumptions, including that our revenue may differ from that projected, that we may be further impacted by slowdowns, postponements or cancellations in our clients businesses or deterioration in our clients financial condition, that our targeted service markets may not expand as we anticipate, that our reserves and allowances may be inadequate or the carrying value of our assets may be impaired that the outcome of pending litigation may be adverse to us and that we may experience increased costs associated with realigning our business or may be unsuccessful in those efforts.

Should one or more of these risks or uncertainties materialize, or should the underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in any future-looking statements made by the Company in these communications. These and other risks, uncertainties and assumptions are detailed in documents filed by the Company with the Securities and Exchange Commission. MasTec does not take any obligation to revise these forward-looking statements to reflect future events or circumstances.

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

Thank you, Mike and good morning. Today I want to highlight a few important items and then ask Bob to fill in some of the financial details.

First, I'm very pleased to announce that we've amended our revolving credit facility, which increased liquidity at the Company. We solicited a new bank facility for multiple sources, and we are very pleased that we are able to extend our relationship with a group of banks, led by Bank of America and the revised groups of PNC and LaSalle Bank Credit. We've also now added GE Capital. The fully-underwritten amended credit facility maximum is subject to certain reserves and was increased by 25 million to $150 million. It also has better pricing, increased advance rates for our fixed assets and receivables and more reasonable financial covenants. It also allows us to release 7.3 million in restricted cash.

Our liquidity currently is about 47 million, as we move forward to a less restrictive revolving credit facility, and more fully recognize the Company's current operations. As we mentioned on our last call, the first quarter of 2005 marked the end of very close -- costly and difficult period for the Company. In the first quarter, we experienced the normal seasonality and difficult weather, with significant rains in California and extended winter storms in the northeast and northwest. We also dealt aggressively with a number of lost contracts, primarily with our DOT customers. By accelerating the construction pace on these projects, we made significant projects -- progress towards closing these jobs out, although we incurred higher than normal cost for both labor and materials.

Additionally, we experienced margin compression as we migrated from a partially subcontracted structure to a mostly in-house employee model for install to the home. This migration, to a highly-trained employee work force involved substantial training and additional cost during the quarter. But this investment also will provide -- reposition MasTec very well into the future. MasTec also entered into the final stages of the Comcast upgrade work in the first quarter of 2005, and had a number of close-down costs that impacted the bottom line.

Looking forward, MasTec has the opportunity and will reduce the cost of expensive temporary staff that was needed to complete the year-end audit, the Sarbanes-Oxley compliance work during the last four months. As voice, video, and data networks converge, our core customer base continues to offer profitability growth opportunities to MasTec. Fiber deployment continue to ramp up, as RBOC's prepare to offer robust video data services to their customers. We also believe that the install to the home market shows great promise for expansion as telephone, cable, satellite, customer electronics, and other firms continue to push more bundled video, voice and data and other services into the home. This all bodes well for MasTec.

Our key team members are in place, with a capacity and the capability to make a difference. We have our information systems in place, a tremendous focus on margin improvements, division by division, job by job. We believe that this is a turning point for the Company, and there continues to be underlying strength in our customer mix, which we believe today is the strongest in our history. The remainder of 2005 is all about margins. Our focus over the next few months will be on divisional marginal improvements, on managing profitable growth with existing customers, on deployment of new technologies like fiber in the home and HGTV technology, and on assuring that the correct overhead cost structures are in place.

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

Thank you, Austin. First quarter revenue grew 12% to $218 million, compared to 195 million last year. The Q1 loss from continuing operations was $11.6 million, compared to $24.3 million last year, cutting the loss in half. The Q1 net loss, including discontinued operations, was $12 million compared to 46 million last year.

The first quarter is traditionally been our weakest quarter and we believe that will be true again this year. The Q1 increase if revenue came from two sources, increased install to the home revenue and increased fiber to the home work. We started the fiber to the home deployment in the third quarter of last year. We were fortunate to enjoy the 12% revenue growth, despite a big drop in the Comcast upgrade work. The Comcast upgrade project was basically completed in Q4 last year. Thus, our Q1 '05 revenue included only a modest amount of Comcast maintenance work and the comparative Q1 '04 revenue had a very large amount of Comcast upgrade work.

Our cost of revenue and our general and administrative costs both improved year-over-year in Q1. Cost of revenue was 94% in Q1 compared to almost 97% last year. Most of the improvement was due to lower insurance costs. Also, lost contract accruals were 700,000 in Q1 of 2005, compared to $2.5 million last year. The reduction in lost job accruals reflects our efforts to improve our operations, and also raising our pricing targets and improving our pricing processes. Naturally, our goal is to not have to make any lost job accruals.

As Austin just mentioned, increasing margins is far and away the highest priority at MasTec today. Our G&A costs were down about $4 million for Q1, compared to last year. As a percent of revenue, G&A was 7.6% in Q1 compared to 10.5% last year. The biggest reduction in G&A was in professional fees, which were down three million this year. Last year, we had higher legal and higher audit and Sarbanes-Oxley consulting fees. One of our goals is to continue to reduce professional fees. We plan to do our Sarbanes-Oxley work with in-house personnel in 2005, as opposed to using KP&G for much of our SOX work in 2004. Interest expense remained consistent with last year, at $4.9 million or 1.1% of revenue.

In addition, other income increased due to 1.9 million in gains on the sale of our machinery and equipment. We expect to have further gains on the sale of fixed assets throughout 2005, as we dispose of older assets. For the first quarter, our ten largest customers were: DirecTV at 29% of revenue; Verizon, 12%; BellSouth, 9%; Sprint, 5%; Florida Power and Light and Encore TXU , 3% each; Progress Energy and Florida DOT, 2% each; and Comcast and Dominion Virginia Power at 1%.

As Austin mentioned, we signed an enhanced senior credit facility yesterday. The facility, which is extended to 2010, increased the size from 125 million to $150 million, with better availability, better interest rates, and greater operational and covenant flexibility. Under the amended credit facility, there are no financial covenants if our cash availability stays above 20 million. Should we go below 20 million, we would have a 1.20 minimum fixed charge coverage -- covenant. We will be filing an 8-K this week, with the loan agreement as an attachment, if you want to see additional details to the amended bank deal.

We are pleased to have a quality bank group, with B of A continuing as the administrative and collateral agent and GE as a new lender in the group as the syndication agent. LaSalle and PNC are other members of the bank group, and they have been in the group from its interception -- or the inception of the credit facility in 2002. We appreciate the support we've gotten from the bank group over the years, and we look forward to continuing to work with them. As a point of information, GE Capital did a complete underwriting review of MasTec before they committed to the deal.

As I mentioned with, our first quarter is normally our weakest in terms of both earnings and cash flow. A year ago, at March 31, we had 3.3 million in cash. At March 31, 2005 that was increased by $20 million to 23.6 million. As of yesterday, MasTec had gross liquidity of about $47 million. We define liquidity as bank cash plus availability on the revolver. MasTec currently has no outsta -- no amounts outstanding on the revolving credit facility. March 31 accounts receivable days sales outstanding, or DSO, was 79 days at March 31 this year, compared to 91 days at March 31 a year ago. Our DSO calculation includes contractual retainage and is calculated based upon 90-day sales rates. Obviously we are not pleased nor proud of an 80-day DSO. However, we expect to see further reductions in DSO for four reasons.

First, an improvement in our collection efforts. Second, selling better payment terms. Third, we expect to see a shift in our customer mix toward better paying customers. And finally, DSO improvement is a key element of the 2005 senior management bonus plan. As we have said before, we will continue to monitor the capital markets and we will access them if the opportunity presents itself.

Finally, the to say a little bit about guidance or expectations for the second quarter, we expect revenue to be in the 225 to $245 million range and earnings per share to be between break-even and $0.02 cents per share. We continue to work on a previously disclosed material weakness for inventory pricing in our government division. This issue is caused material earnings surprises in the past, including in the quarter just ended. And the Company is currently implementing measures in the second quarter that should eliminate or help eliminate this source of earnings volatility. Our guidance also assumes stability in each of our operations, modest growth in fiber deployment, favorable weather conditions, and an economy that remains stable.

At this point I'd like to turn the call back to Austin.

Thanks, Bob. And in order to ensure that we have enough time for question and answers, I will now turn the call back over to the operator.

Thank you, sir. Our question-and-answer session today will be conducting electronically. [ OPERATOR INSTRUCTIONS ]. And our first question today will come from Min Cho from Friedman, Billings, Ramsey. Please go ahead.

Good morning, gentlemen. This is Min for Alex Rygiel today. Couple questions regarding your fiber to the premise deployment. Can you tell me approximately how many markets you're currently working on fiber to the premise for -- within Verizon and how many markets you are awarded that you still have not started?

We are currently working in California, Texas, Florida, Pennsylvania, and Delaware. And the project that we haven't started yet is in Virginia.

And when do you expect to start that?

Sometime after June.

Okay. The 24 million year-over-year increase in revenue from Verizon, is all of that related to the fiber to the premise or is some of that related to just some regular MSA work?

It's all related to the fiber to the premise.

Are you looking to hire more employees for the Verizon work, as you have done for DirecTV?

We will continue to -- as we see a long-term market develop, we will continue to evaluate whether we need to go sub-contract model or in-house model. But I would absolutely say there's markets that we've increased our number of in-house employees.

Okay. Going back to -- going to DirecTV, how many employees did you add for DirecTV?

We don't break it out that way, total number of employees. The gain continues to grow at this particular point.

Okay. Do you have your total headcount?

The headcount right now is a little over 8200, I believe.

8200. All right. And then is any increase activities from BellSouth on fiber to the node deployment?

We have not seen the actual work start at this particular point. We believe it to be a second half of this year process. There's nothing out there that makes us believe that's any different than that statement, but we continue to watch developments and, as opportunities come out, we think MasTec's well positioned. BellSouth has been a long-term customer of the Company, some markets extending some 35 to 40 years in length So we feel we are well-situated to take advantage of the opportunity when it does come to fruition.

Okay. Then one final question, can you just remind us what markets you are currently working in for SBC?

We are in the Texas market and a little bit of the California markets. Also , some of the southwestern general markets they do have today.

Okay. Great. Thank you.

Thank you.

And our next question today will come from Kaufman Brothers' Todd Mitchell. Please go ahead, sir.

Good morning. Most of my questions were just asked, but let me ask you a quick question. Can you flush out kind of what's going on with the gross margins at the government and the energy business, and how that will impact the overall gross margins going forward? Also , I looked in the queue, but did you give a backlog number, and if you didn't, could you do that?

Let me first give you a backlog number. We expect it -- right now it's about a billion dollars, which is a little up from last quarter's announcement. As for the gross margins, let me turn that over to Bob a little bit.

First of all, over the last year or so there has been progress made, significant progress, in improving the margins on the energy business. As Austin talked about from the government work, we continue to be disappointed in the margins from the government work. And in the first quarter, we had a significant amount of both labor and materials, including extra overtime and basically extra labor, in an attempt to complete some of the government jobs. So, we're finishing the jobs and it continues through the first quarter to be a drain on margin.

Okay. Also, I noticed in the queue that you had increased your collateral for insurance after the end of the quarter. Is there anything that we can infer from that in terms of, are you writing bonds for new business?

The increase in the insurance is not related to the bonds for projects. It's about our property and casualty insurance program.

Okay. That's it. Thank you very much.

Thank you.

Moving on, we will hear from Chris Madison from Math Capital Management (ph). Please go ahead, sir.

Hi, guys, good morning.

Good morning.

Just two things you've already touch on, but if you could flush out a little detail. The DSO balance at 80 days, what would be your target over -- this is nothing to hold you to, but just given you have so much money tied up in working capital, with your new customer mix, new meaning post-Comcast and larger concentrations with a few of the higher-quality customers you have now, what could you get DSO days down to the course of maybe 12 to 18 months?

Our internal goal, which, as you might imagine, can be subject to change as the [inaudible] mix changes, but our current, sort of medium-term, goal is 60 days.

Is 60 days. If I recall correctly, every day is worth a couple million dollars?

That's exactly right. A little over $2 million.

So 20 days could be $40 plus million and sort of incremental liquidity.

That's the way the math works.

Now I see why your incentivized to push that. What about CapEx target for '05 in total, given some of the new business initiatives?

Our number remains still around 15 million, at this particular point. We will evaluate that as conditions present themselves, but right now I think we're still on target on that for the year.

Right. So if I'm not mistaken, without even getting into things like EBITDA guidance, and I won't even broach that subject, with even hitting half of your DSO reduction target, 15 million in CapEx, sort of diminished amount of expense you have on the 200 million of seven, seven eighths, you should throw off a decent amount of cash-flow this year?

I don't disagree with your statement.

Okay. And let's see, actually the other question was on customer concentration. It was asked and answered. Thank you very much.

Thank you.

Moving on, we will hear from John LaForge with SRQ Capital. Please go ahead, sir.

Hi, guys. On the Quanta call, they talked about utility business really picking up and pricing potentially picking up. The couple of quick questions I have are are you seeing that out of the utility business? Are you going to benefit if this energy plan gets through the senate here this month? And my last two are just MCI and Adelphia, do you see anything coming out of those two?

Well I think first of all on the utilities space, absolutely there's benefits if the law passed and this thing goes forward. I think that you've had depressed spending in the energy markets for probably some two, three years, almost the same as the telecom markets. So I think there is some advantages in that . Also , I think that we find our customers have put projects in the back burner for probably the last couple years, but they're starting to come out and do those projects. The only problem we always have with the energy industry is it takes a long time from planning to actual execution on their plans, whereas in the -- some of the other market we serve, they are very instantaneous decisions and roll-outs.

As for the Adelphia sale to both Time Warner and to Comcast, I think it's very good news and healthy news for the industry, the cable TV industry number one, but also for possible providers of services. They have not -- Adelphia has really put off on upgrading their systems quite substantially for the last five years and by putting them into these new platforms, I think both companies have shown a definite effort to upgrade their systems to offer new suites of products. And so, therefore, they would require some work. So I think it does bode well for MasTec to be able to have some opportunities for some of those types of projects.

Great. What about -- Just one more. What about pricing on contracts across-the-board? Are you seeing any type of lease stability?

There's absolutely stability in the market right now. I think what we've seen here over the last three, four years is a lot of the moms-and-pops that weren't capable of surviving through this troubled times are not -- no longer in the business. And a lot of your mid-range players that were coming into this business at the end of the height, have all kind of exited the markets. So I think there's a very few companies that are truly left that have the capacity and capability to meet some of these needs, so I think that's stabilized pricing at this point.

As future roll-outs come and they become more robust in the future, I think at that point there could be some strains on demands with capacity from firms, but I think that the larger firms are definitely well-positioned to seize the moment, to react to the customer needs.

Great. Thanks.

[OPERATOR INSTRUCTIONS] Moving on, we will hear from Jefferies & Company's Romeo Reyes. Please go ahead, sir.

Good morning, guys. How are you?

Good morning, Romeo.

Just a couple of questions, one on liquidity. As of yesterday , you said that you had 47 million total. Can you break that out between cash and availability on the revolver, and can you give us -- I missed it, if you talked about the test on the -- on how your liquidity on the revolver works? If it's a DSO-based, like the last one -- I'm sorry, your receivables, eligible receivables space as the last one. Can you, perhaps, give us a sense on how that works?

And then , with respect to the guidance, you're pretty much guiding for an improvement in revenues and also in net income. Based on the numbers that I see here, your income from operations was negative 13 million, if you take out the other income benefit that you had in the quarter. So you pretty much looking to have an improvement around $13.5 million on your operating income here. Is there anything else between operating income and net income? Are there any taxes or anything like that that we should be worried about? And is that sort of the right math in that? And then that's it.

Thank you, Romeo. Bob will start off and then we'll try to fill in the blanks.

Okay, the first question. Long list of questions, Romeo. But let me start with liquidity. It breaks down to roughly 10 million in cash and 37 million availability on the revolver. Relative to covenants, there are no financial covenants, as long as our cash availability remains above 20 million. And should availability drop below 20 million, then there's only one covenant, which is a 1.20 fixed charge coverage covenant.

Are the availability how does that work? That $37 million availability, is it a function of eligible receivables?

It's a traditional -- it's a very traditional asset asset-backed loan, loaning, mostly on receivables but also on machinery and equipment. When you look at the actual -- or if you elect to look at the loan document, there is some improvement on advance rates on receivables, but most of the enhanced liquidity comes from higher advance rates on our machinery and equipment.

Okay.

Now, you ask about guidance?

Yes. Just trying to figure out, because I mean --

You've got the math right. We've got the large tax laws carry-forward. Generally speaking, we're not a taxpayer nor are we accruing taxes, so the calculation from going from Q1 to Q2 is directionally correct.

So if I look at the mid-point of the revenue guidance of sort of 235, incrementally your revenues are growing by about $17 million from the first quarter to the second quarter, and approximately $13.5 million of the incremental 17 million should drop to the bottom line.

That's the way the math works. And, of course, Austin, we talked a lot about margin at MasTec and margin improvement, and the Q1 to Q2 improvement is not all revenue. There's clear margin improvement baked into that guidance.

Yes, and the G&A should stay relatively flat, or is that going to come down a little bit?

We expect, possibly, some reduction in that area, as well.

Great. Thanks a lot.

Thank you, Romeo.

Actually, one more question. Hello?

Go ahead, Romeo.

I'm sorry. On Dish, I mean-- is there a po -- DirecTV accounts for 29% of your revenues right now. That's been going up nicely. Is there an opportunity to do business with Echostar as well?

At this particular point we are committed to DirecTV , and according to the contractual agreements that we will not work for Echostar at this point.

Okay, that sounds good. And in terms of sort of like the DSOs, which somebody else mentioned here, now that your mix is sort of shifting towards more -- I mean, it used to be that Comcast and BellSouth were your biggest customers and now DirecTV and Verizon are your biggest customers. Are DirecTV and Verizon better payers? Do they pay you sooner than than Comcast and some of the other cable companies and BellSouth, who were your bigger customers before?

We're not going to talk about the paying habits of individual customers. As we said, I believe we can do a much better job of collections. But there is a mix shift not only toward better paying customers, but hopefully a -- some improvement in contractual payment terms, also. So it's a mix of all of it, but we can't talk about -- we'll not talk about how individual customers pay. They all pay, by the way.

All right. Thank you.

Thank you.

And moving on, we will now hear from Eric Tainer (ph) from Needham & Company. Please go ahead.

Thank you very much for taking my call. First question is, Austin, on your last call you mentioned that you were looking to requalify in states where you intended to continue your business relationships and you expected that to happen within 30 days. Now, which states have you pursued those requalifications?

First of all, it has been completed, and what we've concentrated on is Florida, Georgia, Texas, Louisiana, the Carolinas and the Kentucky, Tennessee area.

Right. Second thing is, it sounds like your two big initiatives are managing DSO's down as well as managing gross margins up. It's not hard to imagine that these would be, at least, somewhat in conflict. Could you just discuss how you might be managing trade-offs in that area?

Let me kind of go through it. We don't think that they are in conflict at all. I think that what you have is that we need to have a process of following-up with our customers better to get our cash flow picked up and our DSOs down. And the bottom line is that the growth opportunities and the growth locations that we have with the customer mix we have, like Bob referred to originally, we have better terms, as we have negotiated going forward. So I think there is growth opportunities with better cash-flow going forward in the parts.

We also have opportunities to save a lot of money in risk and safety, to bring that together, making sure that we don't have lost jobs and that we are bidding more robustly on all of our projects in the future. So there's just day-to-day activities that can take place, a process that can take place that can improve margins on a day-in, day-out basis.

Is it fair to say that part of the improvements that you're expecting here are coming from your recently strengthened CFO organization?

I think absolutely we we've got a lot more robust CFO organization, both here at the corporate office and out in the field. You know, we made a real strong attempt over the last, really five to six months to make sure that our people were in place. And as per this call, which I've stated in this call, that work has been done. We have the capacity and the capability of personnel in each one of our divisions now to really run the business more functionally.

Okay. Last question is, and I'm not sure how much you can talk about this, is you mentioned the senior management bonus plan and that DSOs would be part of that for this year. And I wonder if you can talk about what some of the other aspects of that plan are? What are the other components that you're looking to manage in there?

Well, the major components, of course, are overall Company performance, reduction in DSO, and a very strong focus on reduction of safety and risk issues, because there's so much money, as you guys have seen in the past, tied up in our insurance programs. We think there's a lot of opportunity for MasTec there, and we've made some tremendous strides to take advantage of the opportunities that exist in that piece of the business.

Excellent. Thank you. And good luck.

Thank you, Eric.

And our next question today will come from J.D. Padgett from Founders. Please go ahead, sir.

Hi. Good morning, guys. Couple questions, one on the, I guess, some of the deficiencies in systems you talked about maybe creating some surprises in the first quarter, as well. What was that related to and how do you go about fixing that?

I don't believe we've talked about deficiencies in the systems. The systems have been fairly well in place from the fourth quarter of last year to going forward this year. I think that the only place that we've had system deficiencies and process deficiencies, which we have announced as a material weakness, is that our material reconciliation process with the DOT work and we're working on that. We believe we will have that under control this quarter, but I don't think we have any system deficiencies.

I think what we have is some project issues that we were dealing with at the end of the year. We had some turning down of projects that we dealt with end of the year. We had seasonality that we dealt with at the end of the year. And then we had the migration from a sub-contractor model to an in-house model in one of our business -- you know, a couple of divisions in the last three to six months as well, so I think those were the strains of the first quarter. I don't think it was because of a system or any kind of a reporting mechanism.

Okay. How do you rectify that going forward? Just a little bit tighter control and supervision?

Extremely tighter controls and checks-and-balances on all the bidding that we do. Quite a bit of tighter controls, from financial reporting on a more robust basis so we can dig into our divisional results, stronger and make quicker decisions on how to improve our performance and really discipline to stick with the customers that truly have gotten us through this hump over the last, you know, two, three years. And we have a very strong group of core customers that offers us a tremendous opportunity for not only growth, but financial bottom-line performance. So, it's really focusing in on the right types of businesses and the right customers to go forward.

I guess part of the point in that is that, I guess maybe you're somewhat surprised by the gross margin where it came in in the first quarter and if you had some more real-time checks-and-balances on that, you could modulate the business and hope to --

I think some of them were also decisions that we made to make sure that, by the end of the first quarter, we were out of some of these issues. And, so, we made a strategical decision to aggressively get some of these DOT projects finished, an aggressive decision to get our in-house model in order with -- our installed at home model. So we just sat there and said look, we've got to get these things done, let's get them done now, and they just happened to fall within the first quarter.

What is the mix right now of in-house versus sub-con work?

MasTec probably operates at a less than a 15% sub-contractor mix.

Is there room to take that lower?

There may be opportunities to take it lower. There's a lot of -- there's the -- you have to balance that with the ramp-up of the growth opportunity compared to where we sit today.

Okay. And then one last question just gross margins in the first quarter, can you sort of quantify all those impacts? I think you mentioned weather and some of the shifting in business and so forth. Is there any way to help us understand what depressed that somewhat in Q1?

I don't think we can quantify the exact number, but I do think you can look at the fact that historically MasTec, even if in its robust years, the first quarter were the toughest quarters because of weather. We definitely saw a large amount of rain in California, which that's one of our largest ramp-ups out there for Verizon in the first quarter. And we also, definitely, saw northeast. I mean, there was snow storms, even up to three, four weeks ago in the northeast, northwest. So it was a longer winter than historically been there. But, you know, is there a definite amount or number that I can plug to that? No, but it does impact the productivity of the crews. When you get into the second quarter, that's usually a ramp-up quarter for the strongest quarter, which is the third quarter historically and when we get into basically full-stride towards the end of May and absolutely into June.

Okay. So the biggest impact in Q1 was weather?

It was weather and these other four items that I talked to you about and I've talked to everybody about on the call.

Is the Verizon program kicks into full gear, is there any additional training costs or other things we should anticipate as potentially pressuring margins, or is that all behind us?

I believe we've got the Verizon model pretty well adapted to right now for the opportunities we are serving right now, and we will not have incremental heavy expenses to ramp-up any further opportunities.

Okay, great. Thank you.

Thank you.

And our next question today comes from Navigator Investments, Greg Disasarie (ph). Please go ahead, sir.

Good morning, gentlemen. A few quick questions for you. Could you just detail a bit the transition in the DirecTV business. When did you start making the transition to the in-house model? Is it completed, as we speak?

First of all, we started the transitioning probably about midway through last year. We started off with a very large core of in-house employees. We just decided to go deeper with it and more thoroughly with it. It pays off some good benefits for us going forward. So, we're fairly well -- we're probably close to 70% in-house, 70, 75% in-house on the direct -- on the DirecTV customer model right now. We're going to grow that to probably 80 to 85.

It won't go to 100?

No because you're going to have some seasonality in the ramp-up -- you know, the ups and downs of their sales cycles.

Are there private companies doing this type of business right now?

Yes , there are. There's a few.

There are a few? Thank you.

MasTec's right now the single largest provider of those services to DirecTV.

How did -- how does that affect your margin with DirecTV, going in-house over time? Does it improve it or does it stay stable?

We believe it's a better model for MasTec to be internal.

A better model margin wise or --

Margin wise, operational wise, efficiency wise, customer service wise, quality wise. Literally every front that you would look at from a long-term relationship perspective, it's a better model.

And if you were to garnish some business with one of the major MSOs, is it a similar business? Is it -- would you expect to get similar pricing, et cetera, or how different are the businesses with DirecTV?

It depends on what part of the country you're located in. The installation, the home -- the installation home model and cable TV is more of a local business, not a national business. And depending on the region of the country, they're similar or maybe a little bit less pricey

And just briefly on the significant drop in the broadband business, can you give us a sense of what you expect with Comcast on an annual basis going forward? Can we extrapolate what you did this quarter or would there be some pick-up there?

You probably can extrapolate what we did this quarter.

Okay. And let me just see if there's anything else here. Are you doing any of the connections? Are you dropping the lines right to the house with Verizon, or is it just the trenching and --.

They haven't started that part of the process yet.

Will you participate in that?

If we have the opportunity, we absolutely will. If they put that out to contracting sources, we would definitely be a potential player for that market.

Okay. Thanks, guys.

Thank you, Craig.

We will now hear from Regiment Capital's, Bill Hefran (ph). Please go ahead, sir.

Yes, I see that receivables have definitely helped with the working capital situation, but payables also seem to be up quite year-over-year, and have sort of trended that way over the past few years. Is this a level that you're comfortable with, you know, are you out to use some of that new availability to get that number down a bit? I think we are pretty comfortable with where we are with our payables at this particular point. You know, as opportunities or discounts present themselves, we will definitely review those. But right now I think it's at a comfortable level. Okay. Thank you.

At this time there are no further questions. I would like to turn the call back over to Mr. Austin Shanfelter for any closing or final remarks.

Thank you very much and I appreciate everybody joining our call today. We look forward to communicating with you in the future. MasTec is definitely focused on improving our margins and truly growing a positive business. We are over the hump and looking forward to strong improvements in the future. Thank you very much.

Thank you, everyone, for your participation. That does conclude today's conference.