MasTec Inc (MTZ) 2005 Q2 法說會逐字稿

Welcome to MasTec's August 10th, second quarter 2005 earnings conference call. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Good morning. Welcome to MasTec's second quarter 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 today's call will be opening remarks by Austin, followed by a few financial comments from Bob. Financial discussions will be limited to GAAP-based financial items and their derivatives. These discussions will be followed by a Q&A period, and we expect the call to last approximately one hour.

Now I'd like to turn the call over to Michael Nearing, our EVP and General Counsel for a Safe Harbor disclosure comment.

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 economies 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 also subject to a number of risks, uncertainties, and assumptions including that our revenue may differ from that's projected; that we may be further impacted by slow-downs, postponements, or cancellations in our client's 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 maybe 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 forward-looking statements made by the Company in these communications. These and other risks, uncertainties, and assumptions are detailed in documents filed by the Company with the Securities and Exchange Commission. MasTec does not undertake any obligation to revise those 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. As we complete the second quarter, we are encouraged with the return to profitability. However, we are totally focused on margin improvements for the remaining quarters of 2005 and into 2006. We now have the team, the tools, the industry momentum, and the client list to support and realize our operational and financial goals and objectives. We will continue to look for ways to cut cost, improve processes, and employ new technologies to leverage and to improve margins. It appears that our core customers have and will continue to increase their CapEx cycles, and we continue to see positive current and projected volumes of profitability projects' opportunities with growth -- with our growth customers. Our customers continue to request our services as competition drives voice, video, and data maintenance, upgrades, spending. And MasTec has been and will be there to fulfill our customers' needs.

As we look at the voice, video, and data markets, we believe our largest RBOC customer will continue its fiber deployment plans well into the future. They've announced a goals for home passed in 2006, that is approximately 50% greater than their 2005 plans. Additionally, preliminary stages have been begun for our RBOC fiber deployment -- other fiber deployment projects. Some price requests, engineering, and small projects have already been initiated and we believe that their fiber deployment will accelerate in the first half of 2006. With MasTec's capabilities and geographic footprint, we believe that we will be a major player and benefactor in these projects.

We also see opportunities deploy fiber as telcos are requested to install backbones to wireless facilities to meet their bandwidth needs. The cable industry is currently in a down CapEx cycle. However, we believe with the sale of Adelphia and the increased competition, we will see spending increases in 2006. MasTec's install to the home services continues to expand as our principal customer accelerates its marketing campaign and rolls out next-generation of equipment. The growth of this business is driven by many factors. Our customers' desire to outsource; new technology; general maintenance, including move, adds, and changes; and overall subscriber growth. MasTec is uniquely positioned with these capabilities to meet present and future customer needs as new expanded services are provided to the home.

Many times our team members are the only faces that our customers' clients see, and we take this delegated responsibility very seriously. MasTec energy customers continue to expand, need for additional capacity is definitely there. With this week's signing of the new Energy Bill, we believe that many of our customers will increase their CapEx plans and model the markets. Historically, this CapEx cycle moves slowly, due to regulatory, environmental, and planning issues. However, we believe the majority -- a major investment in the electrical grid and distribution networks will ultimately have to be made.

Our government customers, consisting of DOTs, military bases, RUS and REA customers, continues to increase spending. The DOT contracts have been the largest margin drain for the Company in the past. As a result of MasTec -- as a result, MasTec has proactively reduced backlog for these clients over the last four quarters in order to improve those margins. With upgrade -- upgrade of personnel and systems, we expect better month-over-month results in the future. The recently passed Highway Bill should increase spending in the sector, but we will focus only on profitable opportunities.

MasTec is proud of our single brand, our customers who know and understand our capabilities. As stated before, we have the personnel, the tools, the focus to move forward into a profitable future. Our focus on margin and expanding services with our core customers should drive better operational performance.

I'd now like to turn the call over to Bob so he can fill in the financial data for the quarter. Bob?

Thank you, Austin, and good morning.

Before I go through the details of our Q2 financials, let me mention a few items that I'd like to highlight today. First, income from continuing operations for the quarter was $0.04 a share compared to a $0.01 loss from continuing operations last year. Second, revenue was up 5%, despite a $37 million reduction in cable upgrade revenue. Fiber to the premises and install to the home increases fully offset the cable reduction. Third, gross margin and G&A ratios improved versus last year. We have a long way to go regarding gross margin improvement, but we made progress again this quarter. Fourth, liquidity at the end of the quarter was $46 million, and we should close out this week with over $50 million. This primarily reflects the impact of our new bank deal that we closed in May. Fifth, our third-quarter guidance is for revenue to be between 250 and $265 million, and earnings of $0.11 to $0.15. And, finally, we continue to monitor capital markets, and we will attempt to access them under the right circumstances. We've been saying this all year.

Now let me review the details to the quarter. Second quarter revenue grew 5%, to $236 million, compared to $226 million last year. Income from continuing operations increased to $2.1 million, or $0.04 per share, which compares to a loss from continuing operations of $436,000, or a $0.01 per share loss for the second quarter of 2004. Including the loss from discontinued operations, performance for Q2 improved, as net income was $1.1 million, or $0.02 per share of net income, and that compares with a net loss of $740,000 in Q2 last year, which was $0.02 per share net loss.

The Q2 increase in revenue came from three principal sources. First, increased fiber to the premises work for a major RBOC customer increased by $22 million. Second, increased install to the home revenue increased by $15 million, compared to the same quarter last year. And third, increased business from all of our other customers was up $12 million, and all of this fully offset the $37 million decline we had in cable upgrade revenue.

Our cost of revenue and our general and administrative ratios both improved year-over-year in Q2. Cost of revenue was 88.6% in Q2, compared to 89.3% last year. Most of the improvement was a decrease in subcontractor costs without a corresponding increase in employee costs. Also, lost contract accruals were significantly reduced, reduced to $580,000 for the second quarter of '05, versus $1.4 million in the same quarter for '04. This reflects our efforts to improve our operation and to work off old lost-job contracts. Naturally, we believe that our lost-job accruals should be 0, but we continue to make progress in this area. As we have said before, increasing margins is the highest priority at MasTec today.

As a percentage of revenue, G&A costs were down slightly for Q2 compared to last year. G&A was 7% of revenue in Q2, compared to 7.1% last year. G&A was increased -- was impacted by increased payroll in the finance and accounting areas, but was offset by decreases in professional fees. Interest expense remained consistent with last year's second quarter, at $4.7 million. In addition, other income increased to $1.4 million, compared with $400,000 in the second quarter of '04. The principal reason for increased other income relates to gains on the sale of machinery and equipment, as we continue the sale of older equipment in our fleet. We expect to have further gains on the sale with fixed assets throughout 2005, as we dispose of older equipment.

For the second quarter, our 10 largest customers were DirecTV, 26%; Verizon, 11%; BellSouth, 9%; Sprint, 5%; Florida Power & Light, 4%; Encore TXU, 3%, Progress NDISC (ph) Energy and Florida DOT at 2%; and SBC and Dominion at 1%. We continue to be proud of the quality of our current customer base, and we are very appreciative of the many years of support that our customers have given us. Regarding backlog, we intend to redefine and refine our calculation before year end. However, the backlog number today remains at roughly the $1 billion level.

As many of you know, our business is seasonal and we normally ramp-up revenue through the third quarter of the year, as customer budgets expand and as weather improves. Consequently, we use working capital as we build accounts receivable through the second and the third quarters. At June 30, 2005, MasTec had gross liquidity of $46 million. Gross liquidity should be over $50 million this week, and that is net of the semi-annual bond interest payment of $7.6 million that we made on August 1. Liquidity is up year-over-year, primarily reflecting the new bank deal we closed in May. We define liquidity as bank cash plus availability on the revolver.

Our second quarter accounts receivable day sales outstanding, or DSO, was 82 days, the same as last year, but 3 days worse than the first quarter. Needless to say, we're not at all happy with current DSO levels. We plan to improve our DSO, and we expect the improvement to come from three areas. First, we're going to sell better contractual payment terms. Second, there is a shift in customer mix that improves DSO. And, third, the improvement will come from just more senior management attention to collections. We have said that improving margins is our highest priority at MasTec, but improving DSO is certainly a solid second.

As we have said before, we intend to monitor the capital markets, and we will attempt to access them if the opportunity presents itself. We believe that significant profitable growth opportunities will exist for the Company in coming quarters, and we want to be financially well-prepared to capitalize on them.

Finally, I'd like to say a little bit about expectations for the next quarter. We expect revenue to be from 250 to $265 million, and earnings-per-share to range from $0.11 to $0.15 per share. Our guidance also assumes stability in each of our operations, modest growth in fiber deployment, favorable weather conditions, and an economy that remains stable.

As I've said before, we're down to one major issue -- margin improvement. Our business is not complicated -- it's just basic bidding, contract management, and operational execution. We now have the financial management group and information and control systems to give our people the tools they need to manage to a better bottom line.

At this point, let's go back to Austin.

Thanks, Bob. It's now about execution for us. We're focused on our core markets, as a competitor. We are -- our principal customers, are budgeting large, multiple-year projects, across-the-board favorable legislation is now in place, and MasTec is now positioned to aggressively work these markets and deliver bottom-line performance for our investors. It's back to basics for the Company, and we're clearly focused on improving margins. It's a great pleasure to work with a team so focused on meeting our customer needs and returning MasTec back to long-term profitability. In order to ensure that we have enough time for the Q&A session, I'll now turn the call back over to the Operator, so that we can devote the rest of the remaining time to our listeners' questions.

Thank you. [OPERATOR INSTRUCTIONS.] We'll go first to John Rogers of D.A. Davidson.

Hi, good morning.

Good morning, John.

Couple of things. One, in terms of the outlook, especially for the next quarter that you provided, does that include any more asset sales or significant non-operating income?

Not -- not very much at all.

Okay. Okay. But not at the levels that you've seen over the last two quarters?

Historically, the first quarter and the beginning of the second quarter are the best months to sell out old equipment.

Okay.

And it really kind of tails off toward the end of the year each year.

Okay. Okay. Great. And, then, the other question, if I could, in terms of the fiber to the home work for Verizon, have they been willing to -- you mentioned the backlog was essentially flat. Have they been willing to give you any assurances in terms of level of activity beyond the next quarter or two?

No, there's no assurances out there. I think that we continue to listen to what they are communicating publicly and to us individually, which we can't comment on those dialogues, as we've been through this process quite a few times.

Right.

But we're seeing a consistent pattern of work levels for ourselves in most of our markets. We're in very good markets from a seasonality perspective with California, Texas, and Florida. So they're going to be less impacted by difficult weather unless we get a lot of hurricanes down there in Florida. But in general terms, the work just keeps coming, and we're satisfied with the volumes that we're receiving.

Okay. Okay, great. Thank you.

We'll go next to Todd Mitchell of Kaufman Brothers.

Good morning. Couple of questions. First of all, can you speak to -- without getting too exact -- margin levels by segment? Can we get some idea in terms of maybe ranking the segments and in terms of ranking where the upside came from during the quarter?

A few comments, Todd. First of all, the way we look at our business, we don't have segments.

Okay.

Therefore, it isn't broken out. And we have not been commented on relative margin levels by customer or customer grouping. I believe, prior to my coming several years ago, there may have been some conversation about relative long-term ranking of margins, but I think that's at least two years old at this point and predates me.

Okay. Well, I mean, my question has to do with, I mean, you did comment last quarter that the broadband segment was off because of costs incurred with ramping up -- changing some of the employment status at the DirecTV business. Has that worked its way from the -- through the system? And have some of the problems at the government business worked their way through the system?

Let's do the DirecTV business first and the install to the home business. As we -- as we viewed it, we were ramping up more in-house people, rather than subcontractor model, in the first quarter, some into the second quarter. That work has been done. We're reaching our internal goals and objectives of how many people we want internally for that, and we'll continue to move forward, but it shouldn't have any kind of negative impact on our margins going forward, as we transition to more of an in-house model.

As for the DOT business that we've been working on. It has been, and I've said in my opening comments, that it had the largest margin drain. We're continuing to downsize the amount of backlog in that business so that we can correct the business and move forward in a more positive direction. I think that a lot of work has been done over the last six months. There's still work to be done and accomplished, but we expect to move that business back into its -- or profitability levels in the near future.

Okay. Thank you. One other question. You've commented that you, perhaps, may be opportunistic in the capital markets. Can you speak to what the goal would be there? And to, sort of, can you give us some idea of what, I guess, for lack of a better word, what size transaction you might be looking for?

Well, I think that it's -- we just want to make sure the public markets understand that it's under consideration for the Company. Needless to say, there's a lot of different thoughts about what's the best way to go at it, and what the amounts are. Our job is to create the optimal financial structure and balance sheet structure for the Company. We want to make sure that we are, number one, able to look at our long-term data and what the advantages are of possibly taking some of that down would be. We also want to look at what do we need for capital to grow our business in a very positive way with the opportunities that are presenting themselves going forward. And, I think, at the end of the day, there's a couple different ways to get to those answers. But we do not have a defined strategy that's laid out at this particular point, but we are looking at the issue openly with multiple parties.

Okay. Thank you, very much.

We'll go next to Eric Kainer of Needham & Company.

Thank you, very much. Obviously, DirecTV put out some very compelling promotions the other day, and I was wondering if you could talk to whether you're seeing any early action on that? And, then, I have a couple other things that -- about some other parts of the business.

In general, our customers are getting -- putting on a lot of programs. DTV is -- what they've announced for their marketing campaigns is very public. I think that you also are seeing that we are going to be changing out high-definition boxes and equipment at the homes as they roll out their new products there. We expect increased volume from that customer throughout the second half of this year, but we don't have any guides to give you specifically on that issue.

Great. That's useful color, however. I wonder if you could talk about when do you really see the Energy Bill stimulus starting to hit? I mean, obviously, the sector was maybe a little stronger than I had expected in this past quarter. Do you think that'll take, kind of, couple of quarters before that really starts to feather in there, or a little bit longer or how do you see that?

Historically, when we hear about the bills being passed that we look at in energy, it's usually anywhere from a three to nine-month period of time by the time they understand exactly where the bill is and how it affects them and exactly how they're going to take the positive capital and put it to work, and get it designed, engineered and get it out to the companies. The marketplace is a good marketplace. We've -- a few years ago, we were talking about energy like we are about the government DOT business right now, it was an industry that was down a little bit. We've really fixed the model, and we're excited about the business opportunities that are in that industry. But I think it's more of a slow-going process for the next six to nine months, and, then, it could be a lot more than that as it goes forward after that point.

Okay. Great. And one last question about -- I was just reading in the Q about the Florida DOT, and that they had not yet accepted your application. What -- if you could lead us through that process a little bit, what does it take for them to accept your application? And once they accept it, how far from there before you're qualified to be getting contracts? Obviously, the kind of contracts that you're interested in, as opposed to some of the stuff you've had in the recent past?

Yes, each year we have to qualify with each state by turning in financial data points and filling out questionnaires and performance issues. And different states handle it totally different from each other. In the State of Florida, we're working through some technical issues at this particular point and questions they have. But the minute that you've qualified, you, then, can bid on the projects they're putting out at that time.

We've made a real, serious commitment not to be growing that business in the last little while, so the impact of this has not affected us from a perspective of our strategies and where we're going with the business. However, we are working to meet the criteria needs that the State has in Florida to get the data to them. But for me to try to explain on this call the nuances between qualifying in Florida, to Texas, to Carolinas, they're different rules in different states, how you qualify and the paperwork they deem necessary to be qualified in the state. We have absolutely used this as an advantage for us and to keep our focus on returning our business down here in Florida to a profitable business and going forward in that direction.

Great. Thank you, very much and good luck. Thank you.

We'll go next to Alex Rygiel of Friedman, Billings, Ramsey.

Thank you. Good morning, gentlemen.

Hi, Alex.

Couple questions. First in the world of telecom, can you comment on SBC? One of your peers had made some statements with regards to SBC getting more aggressive in their construction activity from fiber to the node over the last few weeks. Do you have any thoughts on that?

I tried to cover the comment with other RBOCs in my opening comment. What we're seeing right now, and I'm not -- this is not a direct SBC comment, it's a general other RBOCs other than Verizon -- we're seeing, definitely, some pickup in request for pricing. We're seeing some projects starting, small, test projects, or small projects, starting for those customers as well. And we're definitely knowing, from talking with engineering firms and things like that that are going to be working with them, that they're seeing some flow of business opportunities coming their way. So it is starting to pick up some momentum. The question is about when, not if, for us. And exactly which markets are we going to target will be the other big question for us.

Okay. Turning to Verizon, I notice that your revenues have been somewhat flattish for the last couple quarters with Verizon. How do you increase your revenue with Verizon? Do you enter new markets? Do you hope that they increase their spending in your existing markets. What is your strategy going forward as it relates to Verizon?

Well, I think the only way you do grow is if you get more additional markets, number one, I think that's the one big way to get it. Secondly, just in their -- what they have forecasted for their homes passed. And I think if you look at their dialogue that they want to pass 50% more homes, in their words, in '06 than they did in '05, that's going to be in their major markets that they're building out now. So I just think it's volume in the existing markets, and it's -- and it's also the ability to expand in states. I mean, we're -- we've add a state this month, or this quarter, and that's State of New York. We've got some activity up there. But now we're in New York, Delaware, Virginia, Pennsylvania, California, Texas, and Florida. We feel that's a pretty good footprint to be working with them in.

Great. Moving over to the energy side, revenues were up 22% year-over-year. That's very strong. Was that driven by market share gains, pricing power, or strictly volume from existing customers?

I think it's all three. I mean, I really think that you've hit all the three elements. What percentage do I give the growth on each one of those, I can't -- I wouldn't have the answer, Alex, but it's really been -- some of the markets have been because of some pricing issues, some have been because we've just really concentrated on growing the market share with our clients, and some of it has been totally new markets that we've gone after. We like the business, we've liked it for a long time. It's just -- it's great to see that we're getting the right team together and the focus on the business so that it's allowed to grow. There've been some consolidation in that marketplace. It's no longer a mom-and-pop business. In some locations it is, but it's more of a large company fulfillment issue, so there's been a huge paradigm shift over the last five years. I think that bodes well for MasTec's chances in a lot of the markets we serve.

And, lastly, on the ITS segments, revenues up 12%. Can you comment on what services are strong this year to drive revenues to be up 12% year-over-year?

Well, first of all, let me put some clarity to it. What I talked about is government and that's how we list it, as government. And our government's made up of a couple different components, and some of it's the DOT work, some of it's the military bases, and some of it's RUS and REA type of work. So we've seen some growth in the military spending, through some of our vendors we work through there. We see some growth in the RUS/REA markets, some of the building -- the opportunities to build fiber and put a higher level of digital video systems in the remote areas of the country. I know that's under a lot of debate, whether they're remote or not, but there's definitely some spend that's going on there. But we're not -- we're not seeing -- we're not creating spending increases or revenue increases in the DOT world, we're actually pulling that down.

Great, thank you, very much.

Thank you, Alex.

[OPERATOR INSTRUCTIONS.] We'll go next to Vik Grover of Thomas Weisel Partners.

MasTec's back, huh? What's up, guys?

Good morning, Vik.

A lot of questions have already been asked and answered, but I wanted to follow up on Eric's question. How many states are you currently authorized in for DOT work. I know you're bringing that down. But you mentioned in the Q you were reapplying in these states. You used to talk about 30 to 35 states you wanted to be active in, so maybe a little more color on that beyond Florida. A second question, can you give us any color on the revenue opportunity for upgrade work to the former Adelphia plant, and what would the time line be for that business?

And, then, last, you had mentioned to me, I guess, the last time we met, you were thinking of adding some additional services that would be logically folding onto your current business, such as security installation services. Can you give us any color on what other products or services you might roll out beyond what you currently offer?

Okay. I'll try to this in order. First of all, the opportunities that exist for the Adelphia -- maybe I'm not in order, but I'm going to go this way -- opportunities that are going to show up themselves from the Adelphia sale, I think it'll start happening probably in '06. I think we'll see a little bit of activity maybe in '05, but Time Warner's going to get a larger portion of that business. We have good relationships with those folks, and we are going to hopefully gain some of that market share. Comcast is working -- will be buying part of the marketplace, and we'll definitely attempt to try to sell our services there as well and fulfill their needs. But I think it will offer some rebirth of build out opportunities.

I think what's interesting is the CapEx has been down so low in that market the last year-and-a-half that a lot of people have exited that market after two downward trends in the marketplace there. So -- but, I think we're well situated. I think it is a 06 issue, and we'll go from there. There's been new management changes at -- or at the folks up there in Charter. And I think that they'll -- they're talking about long-term plans to up -- finish upgrading their systems and driving that.

As far as avenues for our install to the home services, my dialogue's been pretty open about the fact that this is a platform for a lot of type of services. At end of the day, it's about all of our customers getting to the home and getting to the end user. And I believe that there's going to be opportunity to take a MasTec model that's been developed, which is very unique and very large at this point. Some over 3,000 employees are performing that type of service every day. That -- it is kind of an evolutionary matter that it may be a business that can definitely be used into -- whether it be telco, cable, or security -- and we definitely are going to market the business in that direction. And we believe it can grow in that direction. I'm leaving out one question.

The last question was on states authorized for DOT work and how many -- how many are in and how many you would look to -- ?

Presently right -- presently, right now we're in seven. Back two years ago our goals and objectives were try to get 35 and move it up to 50 states. We accomplished that, but we accomplished that at the detriment of MasTec's performance. We've just realized that we're a better regional player in that marketplace. We can definitely manage the business better and keep a handle on it. And it's not about revenue growth, it's about margin and performance for us. So, right now, we're actively in seven states trying to push for just a couple more.

All right. Thanks a lot, guys.

Thank you, Vik.

We'll go next to Ram Kasargod of Morgan Keegan.

Austin, congratulations. I just thought I'd ask you in kind of reviewing what's happening in this broadband space overall, there's a lot of discussion about WiMax deployments and, also, utility, small municipalities and local governments trying to get state permission to go ahead and install their own broadband networks because the telecom companies are not doing so. What opportunity does these issues create for the OSB industry?

Well, I think just the fact that there's so much competition to go to the home. It's -- first of all, Ram, welcome back. Good to hear your voice on one of these calls. Secondly, I think that the opportunities that are out there from the -- both the primary and the secondary markets to put video, voice, and data to the home is very strong market. And I think that for those that move and get the robust package in there, it can really put a bundled service to their clients, I think there's definite windfall and not long -- and very long term. I think when you look at the dynamics of having a bundled package to the customer, every piece of information that I've read and seen is that the churn rates drop enormously. And so there's a lot of benefits to having the full package there. So I hope I'm answering your question right in saying, I think that it does -- no matter who's offering the services to a local network -- I mean, MasTec's niche is that it provides the people to go ahead and install those products. And I think it offers opportunity.

I know the trade press talks about BellSouth now are doing WiMax broadband wireless deployment. Are you doing that kind of work for BellSouth now or is that a potential?

No. No, we're not at this particular point. Whether it's a potential or not, I wouldn't want to comment on.

Okay. Thank you.

Thank you, Ram.

We'll go next to Michael Neilman of Ridgecrest Partners.

Hello?

Hi, Michael.

Hi, how are you? I guess my question is two-fold. Number one, you mentioned earlier that you have entered into a new state for Verizon, which is New York. And I'm wondering whether or not you might comment two-fold. First off, just on overall pricing that you're seeing? And that process of bidding, clearly, it had to meet your hurdles, so were there a number of people that went into that area as far as bidding that you saw? And just, in overall, what you're seeing in pricing?

First of all, I think that our opportunities to go into new markets right now are based on our performance, and that's a great place to market to somebody. I think we've -- we're taking a lot of pride, and we're going to continue to improve our process and productivity with all of our customers, I mean that's real focus for us. But because we've performed in so many other states, I think has created the opportunity for us to go into additional states. But as for margins, I think what I'd like to -- what I'd like to come -- or not margins, but pricing, what I'd like to come across and say is that we're going to work for people at prices that we feel are fair, that are functional for them, functional for us, and that we can get a good return for our investors with, or else we're not going to go ahead and take on that new area. So, needless to say, there is a lot of dialogue. We are doing a lot more due diligence in any new place we go into to discern that do we have the people, the capability, and the capacity to do that profitably in the work. And so far, we are very satisfied with the pricing that's out there. And we'll continue to monitor it going forward, but we're not going to take on work unless it can provide bottom line for us.

And I didn't recall the question because I, unfortunately, did not hear the answer that you gave, just on the utility bill. Are you seeing any accelerating plan as far as CapEx, and if so, in what area?

No, I -- what we basically are saying on the whole Energy Bill issue, how we see it, is it's great that it's done, it will -- we believe that it will help some of our customers and increase some of their capital spend, but I think it's three months minimal, nine months probable before a lot of that comes out and starts affecting us on a daily basis out there in the work field.

Thank you, very much.

Thank you, Mike.

And we'll go next to Eric Kainer of Needham & Company.

Thanks. A couple of follow-up questions. One is -- On Verizon, have you started connecting homes to the network that you're building, or are you still mostly in construction?

It's predominantly in construction at this particular point.

Okay. Thank you. On the wireless backlog that you mentioned in your prepared remarks, are any of your top-10 customers for the quarter doing much -- generating much business in wireless backhaul? And, kind of, how big could that business be for you? I mean, I don't believe that that's been a focus for you in the recent past? Specifically, I'm thinking that Sprint might be a customer for you there.

Well, the opportunities are just starting to show themselves in the marketplace. That's why I wanted to make a note in my opening comments. Hopefully, in the near future we can talk about what size that's going to be. But there's definitely been some activity in getting pricing proposals. And I think it's a, potentially, substantial amount of work for a few companies to tie the fiber back in to the cell sites.

Great. And one for Bob. Bob, you mentioned -- you made a very intriguing comment, and you mentioned on gross margins that you felt you had a long way to go. Obviously, tremendous improvement quarter-over-quarter. Could you give me a little bit of more interesting commentary around what a long way to go might be?

Sure. First, I wanted to signal that, of course, we're not happy with our gross profit. It's nice to see quarter-over-quarter-over-quarter improvement. But it's a long way from where we'd like to be. And I believe in other -- on other calls, Austin has said, of course, we would like to get back to historical -- historical MasTec gross profits, and as you might imagine, we covet the gross margins of some of our competitors. And, just, if you look at that just factually or mathematically, 11% gross margin is a long way from either our better years or some of our competitors'.

Okay. What kind of time frame do you think it would take to get to those levels? I mean, I assume you're talking roughly 20%-ish. I mean, are we talking a couple of years? Longer than that?

Eric, let me try to do this. Our focus is to get there as soon as possible. And we're doing some strong management, making strong management decisions, focusing on the best customer base we can possibly focus on, really working on our core business. We've got the system in place. I don't want to waste a day getting another percent. I don't think we have a time line other than it's important for us to get their now and get their correctly and meet our customers' needs. So I don't think that -- I would not -- I would definitely not be satisfied with two years. I don't know that I'll be satisfied with a year, but we're going to definitely push to get to those margins quicker.

Okay. Great. And, then, the last question from me is on the competitive environment, you've kind of mentioned that energy, you saw that as getting better and being a interesting -- an increasingly interesting business for you. If you could talk a little bit about the telecom competitive environment, that would be particularly interesting for me?

I think at the end of the day, one of the things that's -- the benefit of a real tough couple years that we've had and others have had -- but a real tough year in the telecom market, is the benefit of it is that it washes out the people that really don't belong in the business. The positive of what's happened over the last year is, really, you've seen the choices that the RBOCs are making. And you're seeing the choices that some of the energy companies are making. So I mean, I think that actions speak a lot louder than words that I can put in your mouth. We had -- Verizon was not even on our top-20 customers two years ago. I think that our services speak for themselves. I think our ability to grow and take a position in there with them, to be a partner of theirs to help them build out the system, speaks for itself, and we expect to continue to grow our platform. And at the end of the day there's enough -- there's a lot of work that's going to be coming out there. A lot of people should have benefits from it. But, I mean, at the end of the day, the customers are going to go to those folks that know this business, that have been in the business, that've proven time and time again they can meet schedules and they can put quality out there and reach their goals and objectives. It's real simple for them. They make a commitment to Wall Street, they want to meet it, they need the companies behind them to back it up to get there.

Thank you, very much.

Thank you. I'd like -- at this time, we would like to close the call down. But we thank you, very much, for joining us today and look forward to talking to you folks in the future. Thank you, very much.

And that does conclude today's conference call. We thank you for your participation. You may disconnect at this time.