MasTec Inc (MTZ) 2008 Q3 法說會逐字稿

Good day, everyone, welcome toll to the MasTec third quarter 2008 Earnings Conference Call, initially broadcast, November 6, 2008. (OPERATOR INSTRUCTIONS)

At this time I'd like to turn the conference over to the host, Mr. Marc Lewis, MasTec's Vice President of Investor Relations, please go ahead, sir.

Thank you. Good morning, everyone, welcome to MasTec third quarter Earnings Conference Call.

The forward- looking statements made pursuant to 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 future results, plans, anticipated trends in the industries where we operate. These forward- looking statements are the Company's expectations on the day the initial broadcast of this conference call and the Company will make no effort to update the expectations based on subsequent effort or knowledge. Various risks, assumptions and uncertainties are detailed in the Press Release and filings with the SEC. Should one or more of the risk and uncertainties materialize or underlying assumptions prove incorrect actual results may differ significantly from the results expressed or implied in these communications.

In addition, we make use of certain non- GAAP financial measures in the conference call. Reconciliation of non- GAAP financial measures not reconciled in the comments to the most comparable GAAP financial measure can be found in the earnings release or Investor Relations of the mastec.com website. In order to make a comparison to two operating results, financial comparisons to last year will be made to proforma net income, which ads back the $39.1 million charge for legacy legal cases and disputes in third quarter of '07. Pro forma number is reconciled to GAAP in the press release and 8K's filed yesterday.

With us today, Jose Mas, our President and Chief Executive Officer and Bob Campbell, Executive Vice President and Chief Financial Officer. The call will have opening remarks by Jose and financial review from Bob. These discussions will be followed by Q&A session and expect the call to last, approximately, 45 minutes. Jose?

Thank you, Marc. Good morning. Welcome to MasTec's third quarter conference call.

First, some third quarter highlights. Revenue for the third quarter was $398 million, our best ever, that's a 30% sequentially increase and a 49% increase over the third quarter 2007. Pretax margins were 6. 1%, increase of 33% over pro forma third quarter 2007. EBITDA was 36 million, an increase of 89% over proforma third quarter 2007. EPS for the third quarter was $0.35 per share, a 94% increase over pro forma third quarter 2007.

Concentration of the largest customer decreased from 47% revenues in the first quarter of 2008 to 30% for the third quarter as our diversification strategy continued to show strong results. Utility customers accounted for $128 million for revenue for the quarter, a 23 % sequential increase and 140% increase from third quarter last year. Revenue from DirecTV grew sequentially 14% and up year- over- year. Revenue from the top telecommunication customers, AT&T, Verizon, and Qwest all had significant sequential growth and up year- over- year anywhere from 30% to 257%. Wind power revenue accounted for nearly 10% of total revenue in the third quarter compared to basically 0% in the first quarter. Natural gas revenue accounted for approximately 10% of revenue and solid organic growth from the legacy business. Backlog was up despite record revenues. Cash flow from operating activities $29 million for the quarter. Our best quarter in years and a true indication of our improvement in success. All in all, not a bad quarter.

Now, let me get into industry- specifics. Our install- to- the- home markets have a solid quarter sequential 14% growth from DirecTV. That was important considering the loss of AT&T relationship for DirecTV had a negative affect on the second quarter. During the third quarter, DirecTV did an excellent job of regaining momentum in the markets and we expect a strong finish for the balance of 2008. As for 2009, we are very excited and encouraged by the recently- announced new relationship between AT&T and DirecTV. Which starts in February, and which we feel will have a significant impact, not only on our old BellSouth territories, but also additional AT&T markets that we cover that have never had a co- marketing arrangement.

Our communications markets had a very good quarter. Revenue with Verizon up 14% sequentially and up 31% year- over- year. This increase was due to continued success with the [Fious] program and new relationship with Verizon Federal. Revenue with Qwest was also strong, which was 21% sequentially increase and 51% year- over- year increase. Increased revenues from Qwest primarily related to their increased focus on fiber expansion in their network. Finally, AT&T revenues up 213% sequentially and 257% year- over- year for two reasons. One: Core AT&T wire line business up 35% sequentially and 54% year- over- year, and; two, acquisition of [Ensoro] accounted for $34 million for revenues for the two months we own them in the quarter. While we expect wire line maintenance and new construction cap ex to remain under pressure we believe fiber expansion and deployment will be less impacted. As for wireless, expect continued growth in 2009 and believe that full- year 2009 wireless revenues will at a minimum exceed $200 million.

Utility markets continue to show strong growth and results. Utility revenues were $128 million, a 23% sequentially increase and 140% increase year- over- year. Our results were driven by an 11% increase in our core utility revenues, and by significant growth in both wind power and natural gas, each of which accounted for, approximately, 10% of revenues. While our core utility business continues to see market pressure related to housing and maintenance, this is partially offset by higher transmission spending and MasTec improved position to perform and compete if the space.

Natural gas markets performed well in spite of revenue delays at Pumpco, our recently acquired pipeline construction company. Pumpco affected by right of way delays on a very large project that was set to start in July, but did not actually start until late September. Pumpco is now fully deployed on the projects and will go into 2009 with strong backlog. Despite pressure in the financial markets, we continue to see significant demand for the services in the natural gas area and with natural gas prices around $7.00 per million BTU we expect that to continue.

Wind power business performed well in the third quarter, representing nearly 10% of total company revenues. We are very pleased with how we have been able to grow this business throughout the year, and believe we have solidified ourselves as a major player in the area for years to come. We strongly believe that wind power construction will be a major economic catalyst for the United States as evidenced by the intent of the Obama Administration to mandate utilities generate 25% of electric power from renewable sources by 2025. We believe the long- term prospects for wind energy continue to be very strong. While we've seen certain customers cut back on the 2009 wind energy plans, due to the tightening credit markets, we believe that this will be a temporary delay. For instance, all though FBL announced they'll reduce the 2009 build to 1,100 megawatts, roughly the same number of 2008, they also stated they had a backlog of economically feasible projects totaling 25,000 megawatts. A number that exceeds today's total US installed wind capacity. Despite these reductions, Power Partners is currently involved in RFPs negotiations and discussions for 2009 projects that far exceed what we'll do in 2008.

In summary, we had a great quarter. We expect a strong finish to 2008 and encouraged about the long- term prospects. We expect the recent financial turmoil and difficult credit markets to have a negative impact on some of our customers in 2009. Despite these difficulties, we expect 2009 to be a good year with solid growth in revenues, margins, and earnings.

Finally, our recently announced acquisition agreement with Wanzek construction has presented us with some challenges. Wanzek is a great fit with our business model and would give us end- to- end capabilities in the growing wind construction market. We had hoped to close this transaction by the end of October, but, obviously, the markets have changed dramatically in the past 30 days. We have, approximately, 60 days to close this deal and are currently reviewing all of our various alternatives. Two points that I would like to clearly communicate: One, we continue to monitor Wanzek's backlog in 2009 projections in light of recent developments. Rest assured, we will be comfortable with Wanzek's business prior to closing. Two, we are going to make a responsible decision regarding this transaction. MasTec will not fund this acquisition solely with equity at or near current levels nor will we burden our balance sheet with a significant amount of expensive debt. We've seen some improvements in the financial markets and will monitor the situations and make a decision that is in the best long- term interest of our shareholders. Due to the delay this closing, we have backed out Wanzek's expected fourth quarter contribution and reissued both full- year revenue and earnings guidance. It is important to note that our earnings guidance was raised again for the third time this year.

In conclusion, we had a great quarter and expect a strong finish to 2008. Our focus on accountability and margin improvement has made us a better and more competitive company. MasTec today is more diversified and we're positioned very well. I will now turn over the call to the CFO, Bob Campbell. Bob?

Thank you, Jose. Good morning. As Jose mentioned the third quarter was an excellent quarter. We remain optimistic for the rest of the year and for 2009. And we remain optimistic about the business, even though the economic outlook is much worse today than when we had the call a month ago.

My highlights for Q3 are as follows: Q3 revenue up 49%. It was led by growth in the utilities markets, where revenue more than doubled, and as Jose said, it was a record. Our customer concentration and diversification has improved dramatically, DirecTV was down to 30% of total revenue for Q3 compared to 44% a year ago and 47% in Q1 this year. The reduction in customer concentration is caused by greater growth rates in wind farm, natural gas, wireless revenue, even though DirecTV, also, grew in the quarter. Gross margin before depreciation improved 210 basis points to 15. 6%. Q3 EPS $0.35 per diluted share compared to pro forma $0.18 last year. That's after backing out last year avenue $39 million Legacy litigation charge from income from continuing operations.

Operationally we had a very strong quarter. Q3 cash flow from operations was $29 million. Up substantially from $17 million last year. We acquired [Ensoro], a large wireless infrastructure provider, in August. Liquidity and cash flow remain strong. We've revised 2008 revenue guidance to reflect the delayed Wanzek acquisition closing but increased the 2008 earnings guidance, again, to $0.93 to $0.96.

Now for the details. Revenue up 49% to $398 million and fully diluted earnings per share $0.35. Exceeding our guidance and also the street consensus $0.32. Although fuel prices fell substantially after quarter- end, our improved financial performance in Q3 in spite of very high gasoline and diesel prices. Our gross margin in Q3 increased sharply from 13.5% last year to 15.6% this year. That's a 210 basis points improvement and that's without depreciation. The margin improvement is the result of productivity gains and impact of mix. Higher growth rates from higher margin businesses, wind farm and natural gas pipeline.

Fuel costs continues to be a drag on margins. Q3 fuel costs increased almost $6 million over last year. With an average cost per gallon of $4.12 versus $2.87 a year ago. That's a blended cost of gasoline and diesel.

For Q3, G&A expense was stable up slightly 6.4% of revenue last year to 6.6% of revenue for 2008. The Q3 2007 percentage is pro forma without the Legacy litigation charge last year. The increase percentage is due to higher bonus accruals, reflecting dramatically higher earnings performance. Outside legal fees were just under $1 million this quarter and only $700,000 last quarter, reflecting, finally, the wind down of the Legacy litigation that we've been talking about. Net interest expense was up about $1.7 million or $0.03 per share worse due to lower interest rates on temporary investments and lower catch balances due to cash used in acquisitions and business expansion support.

The third quarter of 2008, 10 largest customers were DirecTV, 30%, that's down 47% from Q1, 44% from last year. AT&T, 15%, of course, the growth was helped by our [Ensoro] acquisition. TETRATECH a wind farm construction company, 8%. Verizon 7%. Energy Transfer and Qwest 3% and Embark, Progress Energy, Pecan pipeline and XTO were all 2% each. Regarding diversification, our top 10 customers now include one satellite television customer, four telecom customers, one wind farm customer, three natural gas pipeline customers and one electrical utility customer. The day backlog is about $1.4 billion, that's an 18- month backlog number. Comparable number a year ago, $1.2 billion. Even though we believe fiber deployment work will last for many years, our backlog includes only the specific work for which we have current visibility. We expect a significant increase in backlog shortly, due to a wireless contract currently in the final stages of negotiations.

We are especially proud of our strong financial condition and balance sheet and, also, our cash flow trends. Cash flow from operations was excellent in Q3. Cash flow from operations was $29 million compared to $17 million the same period last year. Our cash flow continues to be helped by our tax position, currently we have a federal tax net operating loss or NOL of $193 million, which we can carry forward against future cash tax liabilities. We expect to pay only a modest amount of state taxes and maybe a minor amount of federal AMT for 2008 and 2009. Maybe up to a couple million dollars in cash for this year, and an estimated $3 million to $4 million dollars for 2009. Then we'd be a partial taxpayer in 2010 and, finally, we expect to be a full cash taxpayer in 2011.

We've generally been bragging on these calls about our accounts receivable days sales outstanding or DSO. However, Q3, DSOs up 59 days last quarter to 64 days at September 30th. The increase is mostly due to unbilled accounts receivable, generated by accelerated growth in the [Ensoro] wireless business. We're working through that issue now and we should have much better [Ensoro] DSOs by year- end.

To summarize the cash flow characteristics, I would say this: earnings are going up dramatically. Collections even at 64 day DSO are reasonable. CapEx is modest and tax payments are immaterial therefore the cash flow is pretty good. At the end of the third quarter, we had a $151 million in cash availability on our bank revolving line of credit, and securities available for sale. $18 million of the cash is restricted. Most of our debt is $150 million 10 year senior notes we sold last year. The interest rate on the notes 7 and 5/8ths percent and the bonds have a 2017 maturity and we don't have way in the much of debt maturities for nine more years. Our recently- expanded five- year, $210 million bank credit facility has an accordion feature making it expandable to $260 million under certain conditions. The facility has a current interest rate of LIBOR plus 200 basis points or prime plus 50 that seems pretty good in today's credit markets.

On the September 30th balance sheet we have $25 million of securities available for sale, which are our auction rate securities. We have taken an $8 million live to date temporary impairment charge against equity to reflect the estimated market value of the securities and we continue to monitor the market value and liquidity for the securities.

In the litigation footnote in the 10- Q we did disclose that we've filed a binding arbitration claim against Credit Suisse, our investment manager. In the arbitration claim we're asking Credit Suisse buy back the auction rate security at par which is $34 million.

Now for our guidance update. As I mentioned, we have adjusted the 2008 revenue guidance downward to reflect the delayed closing of the Wanzek acquisition. We have previously assumed an end of October closing in the guidance, and we're now assuming a year- end closing. Therefore, our guidance assumes no Wanzek financial contribution for 2008. Our 2008 revenue guidance is $1,325,00000 to $1,345,00000 compared to $1,038,000,000 last year, that's 28% to 30% increase. However, we're raising our EPS guidance, again. Now, to $0.93 to $0.96 per diluted share which compares to pro forma $0.67 last year. That's a 39% to 43% increase in earnings. Pro forma $0.67 last year is income from continuing operations shall excluding a $39 million one- time Legacy litigation charge; therefore, $0.93 to $0.96 this year is operationally comparable to the $0.67 a year ago. And actually, the year- over- year operating comparison is even a little more favorable. This year's results include a negative $0.05 for additional Legacy litigation accruals. Last year's results included a $0.04 positive gain on the sale of real estate. Both are one- time, nonoperating items.

The EBITDA comparisons are similarly good. 2008 guidance in terms of EBITDA is $105 million to $109 million compared to pro forma $73 million last year. Pro forma EBITDA for 2007 is based on income from continues operations, excluding the $39 million Legacy litigation charge. We have slightly lowered our 2008 EBITDA guidance, our previous guidance had Wanzek EBITDA in the numbers for two months. Our profit margin improvement is is, also, good. The pretax profit margin was 4.4% for 2007. And our guidance for 2008 reflects improvement to 4.9%. We have been saying for some time that our short to medium- term goal for pretax profit margin is in the 6% to 8% range. 2008 was progress toward that goal. We foresee getting into our target range in 2009.

To give you another data point, our EBITDA margins are also improving. Based on the guidance, it improves from 7% for 2007 to 7.9% to 8. 1% for 2008. the margin improvement comes from a combination of revenue growth, growth and higher margin businesses and productivity gains. The Company's guidance assumes continuation of today's soft recovery and not dependent on fourth quarter recovery. Our guidance, also, does not included ale impact of the legacy litigation or mark- to- market evaluation adjustments on auction rate securities. These items are excluded either positive or negative. I hope the comments regarding Q3 are helpful.

In closing, just to echo what Jose said, we had a great quarter and expect to have a better year in 2009. That's in spite of a soft economy. Our revenue is growing. Diversification is putting more reliability in a greater spread of risk into our business model. We continue to reduce costs and become more efficient and we expect improved earnings and margins.

That concludes my remarks. Now let me turn the call back to the conference operator for the Q&A section. Thank you.

Thank you. (OPERATOR INSTRUCTIONS). We'll take the first question with Eric Kainer with Think Equity. Please go ahead.

Thank you very much for taking the call. Congratulations on really a bang- up quarter, folks.

Thank you, Eric.

The first question about productivity. Jose, you mentioned it, Bob, you mentioned it, and it is - - you know, obviously, we saw the impact in gross margins. I wonder, a couple different things. First, if you kind of let - - given us your view as far as how much of the sequential improvement in margin is due to product snift how much due to mix? I understand that's a difficult question to answer, but whatever you have would be helpful there. The second thing is, help us understand how you're using the productivity tool that, I think you mentioned back in May of last year, how that has been used kind of across the Company? Is it in all of your different work units? And especially how that spread to some of the new acquisition that you make?

Yeah. Couple of things. I think you know when you look at the quarter, think one of the things we're very proud about the quarter is the fact that a lot of our improvements came from existing operations that we saw tremendous improvement in the core businesses across the board from a growth perspective and margin perspective. We don't really break out, obviously, the contribution by each and every business unit. Internally, we've looked at it and we're very happy with the progress that we've made in terms of productivity across the board. I think you know the, again, one of the most important things this quarter was the strength across all of our business units. Not just one area carried the Company, it truly was across the board. Part of that, as we mentioned earlier, is we've been really focused on accountability, improving margins over the course of the last year- and- a- half. I think the productivity tool that we laid out in early 2007 and have deployed throughout the Company is having an impact. I think that's a process that never ends. I'd say we're probably still not halfway through where we want to be with the process. We got people using it, we need to go back now and really evaluate how the people are using it. How - - what are they driving from? I think we got work left it do there. There's no question if my mind that hasn't impacted us. Every acquisition we do and we begin to integrate, we actually do introduce the productivity tool. Some of the Companies that we bought have a similar program. We're comparing the two, actually trying to pick a best in class.

Okay. Great. So, it sounds like, you know, improvement in gross margin, probably, was, maybe, more from the use of - - improved productivity than from mix? Although, obviously, both component there is.

The next question that I had is really about the wireless [Ensoro] business. Obviously at the point you acquired it, that was predominantly AT&T- based revenues. And it sounds like, from reading between the lines here, the big project that Bob referenced is, probably, a non- AT&T project. So maybe we can expect better balance between different customers for that business as we roll into 2009. Is that a reasonable expectation?

A couple things, Eric. I think the wireless area is actually a very can sighting area for us. I think an area changing. In terms of how the business is being contracted and who is being chosen. I think that we said all along the cornerstone of [Ensoro]'s business and the strength behind [Ensoro]'s business will be driven by AT&T. We have made it clear that we want to grow the customer base and really diversify that customer base. I think you'll see that in 2009; however, I believe that you know the core of that business and strength of that business will primarily be driven by AT&T.

Okay. Great. And, last question that I had is, on seasonality. Specifically, I know you touched on the seasonality of the wind business before. I wonder if you could give us anything more on that? As well as the Pumpco and [Ensoro] businesses? Help us understand how seasonal those businesses are.

I think they're similar to the rest of our business. And you know, as you look at all of our businesses, they're somewhat different. Each section of the business that we talk about and we cover really has a little bit of difference seasonality to it. For example DirecTV tends to be a little bit stronger toward the end of the year because of the retail season. We do see some budget pressures at some teleco utility companies toward the end of the year as a new budget took place. Pumpco specifically in the Southwest, predominantly Texas which is less impacted by weather and we feel that they'll be a less seasonal business to [Ensoro] and driven by capex cycles after telecos. Probably is see a little bit of seasonality as you go toward the second half of Q4, beginning of Q1, until all of the next year's budgets are approved and fully funded.

Okay. Thank you very much. Good luck.

Thank you, Eric.

We'll take the next question with Liam Burke with Janney Montgomery Scott. Please go ahead, sir.

Thank you. Good morning, Jose.

Good morning.

Can I ask a question on pricing? It looks like the pricing despite the fact that there are some potential project cutbacks is holding in pretty well. You mentioned on the wireless side that the contracts are a little different, or the structure a little different than traditional construction projects. Could you give me a sense as to whether or not pricing will hold its own? Even in an environment that may be a little softer?

That's a good question. I think it will. I think it is important the relationship and the reputation we've been able to build across the different segments of business that we're in. I think those relationships and quality of work that we've done and really been able to prove MasTec is the right solution for many of our customers really insulates us a little bit more than than, maybe, historically from pricing pressure. You know to this point we haven't seen the pricing pressure. We're still, you know, seeing strong competition out there, and fair competition, and we actually expect to continue. We haven't, despite what's happening in the economy the last couple months, not seen it affect pricing yet.

Okay. Bob, on the margin question, you don't have any more contracts running off anymore than in the past? 2007- 2008 timeframe?

Lost contracts?

Right.

No. To be perfectly honest, there's a modest, tiny lost job accrual on the balance sheet and would round to zero.

Okay.

We've run those off by now.

Thank you.

(OPERATOR INSTRUCTIONS). We'll take the next question with Paul Bonafont with Morgan Keegan.

Given the delay of closing of Wanzek deal how should we think about the prior forecast issued coins dent with the acquisition announcement back in early October? I guess at the time the expectation was it would close later in the month. I'm asking specifically relative to the forecast for sales of $1.95 billion to $2 billion of earnings per share of the range $1.05 to $1.15.

Paul, we're not changing 2009 guidance. We're working hard to hopefully close the Wanzek acquisition at year- end. I think that to give you, probably, the clarity that you're looking for, for whatever reason, Wanzek transaction does not close, as we look at 2009, and back out their contributions probably expect revenues to increase somewhere in the mid teens. Lowering the revenue forecast for '09 somewhere between $400 million to $500 million dollars as a wide range and EPS or income side probably at the lower end of the previously stated guidance. Not a significant amount of change to '09. Obviously, revenue would be impacted if we didn't close the transaction. From an earnings perspective wouldn't have a big impact. Still shooting for our targeted guidance margin range of 6% to 8% and guided at the low six's, would expect that to happen in 2009 with or without Wanzek.

Okay. That's helpful. It does sound like you're fairly confident the deal will close before the calendar year- end?

We hope so. We're going to work hard on it. As we said earlier, we're going to make a responsible decision. We're currently going through all of the various alternatives that exist for us and that's our intent.

Can you - - can you comment by any chance on what those alternatives might entail? I think a lot would think that deal would be financed with some kind of equity financing to lead to a share count increase. Just trying to help us out in the modeling, if you could, without trying to pin down on what the financing might be, maybe just discuss what options you're looking at?

Paul, I think we're looking at all options. I know that's a general and vague answer. I think you know what we said during - - in our comments earlier was, we have no intention of closing this deal solely with equity at or near current prices. We think the stock is, obviously, significantly depressed. We think that we're in an extremely good position relative to the market today and relative to where we think the market will be over the next couple of years. I think the performance of this Company has been consistent and has been as good as ever and we think, obviously, our stock price does not reflect that. So we continue to be hopeful that as investors learn more about this success MasTec is having about the business going forward, about the 2009 projections, what we're seeing in the different industries, we're optimistic that people will look at MasTec differently and reward us for the success that we've had and the success that we expect to have.

Okay. Fair enough. Next question. It may be a little bit early to ask, wondering if you have thoughts on the impact of the recent election on trends in wind power? Beginning next year?

We think it is fantastic. I mean again, earlier we talked about the Obama Administration's plan to mandate alternative energy sources. Obviously, some big numbers that are being thrown around. Yesterday, they talked about $150 billion incentive package over 10 years directly related to alternative energy. The 2025 plan that he's putting out in terms of percentage of alternative energy. Those are significant. Those are probably the most aggressive numbers that we've seen over the course of the last few years since we've been involved in wind. So if he lives through with what he said and hopefully get good indication over the course of the next couple of weeks, as they begin to set their legislative agenda for next year, we think that could be extremely positive and we're actually very optimistic about that.

Thanks. One last question, if I may, relative to your DirecTV business. Wondering if the slowing consumer spending might lead to fewer HD- TV upgrades? What's your thought there? I guess, specifically, with regard to how that - - the mix in that business might be shifting relative to installation versus upgrades?

Well, we, obviously, didn't see it in the numbers in the third quarter. You know 14% sequential increase year- over- year growth despite, obvious, loss of AT&T relationship, which had a significant impact on MasTec specifically. We're actually seeing very strong activity and think they've done an incredible job at positioning their product and weathering the downturn economic cycle. We think they continue to be well- positioned and will do well through the retail season and expect as we said on the last call actually expect the second half of this year to be up in both quarters and expect the DirecTV business to be up in the fourth quarter of this year versus fourth quarter last year.

Thank you for taking my questions.

Thank you, Paul.

We'll take the next question with Min Cho with FBR Capital.

Good morning. First of all, congratulations on a very good quarter. In the third quarter, how much of the revenue upside came from positive hurricane impact?

You know, Min, actually minimal. A couple million dollars and I think that when you look in MasTec, I think we're better equipped to handle storms on the East Coast, just because we have such a stronger presence on the eastern seaboard. We had some customers that, obviously, released our crews and allowed us the opportunity to work in some of the storm- affected areas. I think revenues probably in the $3 million to $4 million dollar range. But, unfortunately, we wish we could have done more. I think the other side of it is, you know, we're actually extremely busy completing large projects and you know some - - obviously, we couldn't necessarily move those people because of some timeframes around the projects. So, it didn't have as big an impact as a storm on the East Coast would, or even you know storms in prior periods.

Okay. But that's just shows how strong the quarter actually was. Didn't get, you know, didn't get much help from the hurricanes there. Also, in terms of your cost of goods, in that commentary, in the Press Release, mentioned decrease in install to the home headcount, help the costs. Can you talk about - - that just from attrition? Actively cutting heads on the DirecTV install- to- the- home? Talk about the trend, please.

We've been talking a long time about - - I think you're looking at a year- over- year comparison. Resources are - - went up Q2 to Q3. Went down year- over- year. I think last year, obviously, we had our difficulties with DirecTV and we were in a massive hiring ramp up. I think a lot of inefficiencies as a company and what we said for the last year- and- a- half is that we always felt that was a business where we could make, you know, tremendous efficiency gains by better managing the business, by better focusing on the on operations of the business. Obviously revenue growth slowed in the business this year that's given us great opportunities to do that. I think we're ruing a better operation both economically and from our customers' perspective and performing extremely well. That's good management and some changes in what happened in Q3 last year versus Q3 this career. Min, I like to repeat it, I know I said it earlier. One of the things we're very pleased about in the third quarter was the fact of the strong performance across the board. Our earnings didn't come from one area. It wasn't a storm. It wasn't an acquisition. It was truly the entire company performed extremely well and significant improvements across the board.

Excellent. Final for Bob, to get a clarification, EPS guidance for 2009 includes the litigation charges? From the first half of the year? I mean, 2008? I'm sorry.

Yes. Yeah.

Okay. Pro forma - -

Right. Includes. Includes. After the negative impact.

Okay.

Roughly $0.05. So the $0.93 to $0.96 includes that.

Min, we originally issued guidance last year or earlier this year, we said the guidance did not include impact of negative litigation. And I think in spite of that negative charges for the litigation charges, we've been able to beat that original earnings forecast three times. I think that's important.

Okay. Great. Thank you. Good luck.

Thank you.

We'll take the next question with Todd Mitchell, Kaufman Brothers. Please go ahead.

Good morning, gentlemen. I have a question about the DirecTV business. And some of the dynamics that may change when the AT&T territories come online in your area. Specifically, somebody already asked about the shift of mix and how that might impact it. Also, you mentioned at time you're a pretty significant course of gross ads for them. Can you sort of address, now, another big marketer in your market might impact that? And is that a material part of your - - sort of the fees for getting them gross ad as material part of that business?

Couple things on that, Todd. I think that, obviously, you reference our retail business with DirecTV, which we've done very well at. I think that that business performed very well, even during the time AT&T had a marketing arrangement in a lot of those states. I actually think the marketing channels are very different and there's not a lot of overlaps and don't see the AT&T relationship as a negative to that business. We see it as more marketing channels. We don't think they necessarily compete with our specific marketing channels. We're not very concerned about it. And we don't think it will have much, if any, effect in 2009.

Can you give me some kind of idea how material that business is? I'm assuming not that material at the top line, but, you know, fairly high margin component of it?

We don't disclose revenues or earnings by different segments of our business. So, we're not going to do that.

Okay. All right. Thank you. One last question, somebody asked you the hurricane impact on the previous quarter, did you expect (inaudible) going forward, still?

No. You know, we've issued guidance all year without any storm activity. We probably had a couple of people in early October in some of the areas, but it will be neglectable.

Thank you very much.

Thank you.

And we'll take the final question with John Rodgers with D.A. Davidson. Please go ahead.

Good morning, hi, Triston for John.

Hi.

Just a question, as it relates to the gas business. What are you hearing from your customers regarding, maintenance and budget force prospects for lines out into 2009?

To date we're seeing strength. During the quarter we actually had to turn away jobs we couldn't man. No question the business changed a lot in the last, you know, 30 to 60 days. We're monitoring that closely. I think what's important as you think about MasTec is you know while that's becoming a more considerable piece of our business, it doesn't take a lot of projects to really get us to the levels that we need to get to. So, it is not like you know we're expecting significant growth in the gas supply for us to continue to see growth. I think we got a couple of customers that have been very good to MasTec. A couple customers we think rely on us. We look into the balance of 2008 and 20 19 and expect the business to be strong. We expect business to be, at - - where we forecasted it into '09 and actually spent a lot of time on that in the last couple of weeks. And in terms of making sure that what we're think something going to happen in 2009 is really being collaborated by the customers. And we think we've done that.

That's great. Thank you. Congratulations, again, on the quarter.

Thank you.

That does conclude today's question- and- answer session. I'd like to turn the conference back over to Mr. Jose Mas for any additional or closing remarks.

So once again I'd like to thank all of you that have supported us and encouraged us this quarter. A special thank to you men and women of MasTec that helped to make the quarter the best in MasTec's recent history. I look forward to the fourth quarter call. Thank you very much.

Once again, Ladies and Gentlemen, this will conclude today's conference. We thank you for your participation. You may now disconnect.