MasTec Inc (MTZ) 2008 Q4 法說會逐字稿

Welcome to MasTec fourth quarter 2008 earnings conference call, initially broadcast March 3, 2009. (Operator Instructions)

At this time I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations.

Thank you good morning. Welcome to MasTec 2008 fourth quarter earnings conference call. 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, plans and anticipated trends the industry's where we operate. These forward-looking statements are the Company's expectations on the date of the initial broadcast of the conference call, and the Company will make no effort to update these expectations based on subsequent events or knowledge. Various risks,uncertainties and assumptions are detailed in the press releases and filings with the securities exchange commission, should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect actual results may differ from the results expressed or implied in the communications. In addition, we may use certain non-GAAP financial measures in the conference call, a reconciliation of the non-GAAP measures not reconciled in these comments to the most comparable GAAP financial measure can be found in the earnings release press release or on the investor relations section of the web site at www MasTec.com. With us today we have Jose Mas, President and Chief Executive Officer and Bob Campbell, Executive Vice President and Chief Financial Officer. The format of the call will be opening remarks and analysis by Jose followed by a financial review from Bob. These discussions will be followed by q-and-a period and we expect the call to last approximately 45 minutes. Jose?

Thank you, Marc. Good morning, and welcome to MasTec Q4 and year end 2008 conference call. First, some Q4 financial highlights. Revenue for the quarter was $414 million, up 51% year-over-year and the highest revenue quarter in the company's history. Earnings were $0.29 per share prior to deferred payment to previous CEO, this represents a 164% increase in EPS year-over-year. Revenue for the year was $1.379 billion. And earnings were $0.96 per share.

2008 was an importance year for MasTec I've been vocal over the past year and a half on our focus on accountability and margin improvement. Early on we deployed better tools for measuring and tracking performance and we have seen the positive results of this effort in 2008. Productivity enhancement continues to be our greatest tool for margin expansion opportunity, we will remain focus on that objective. Our diversification efforts which commenced two years ago have also had a significant positive impact on MasTec. Altering our revenue mix and margin profile, and more importantly our positioning within the markets we serve. MasTec today is a very different company than just 18 months ago, we are now working for some of the strongest companies serving some of the fastest growing segments of of our economy. With the continued expansion of electrical transmission and pipeline construction capabilities our wireless capabilities and our position as one of the leading contractors serving the alternative energy markets, we are well positioned to take advantage of all of the significant growth opportunities in these markets.

These are some of the most challenging economic times in our country's history, fortunately, MasTec is in a privileged position, capable of weathering the storm and prepare to be an active and contributing participant in those industries that will lead Americas economic recovery. In December of 2008, we required Wanzek Construction a general contractor with over 30 years of experience serving the industrial, and alternative energy markets. Wanzek will enable MasTec to build the bridges and levies, construct the bio fuel plants, work on combined heat and power stations, erect the towers, place the rotors and wind turbines, install electrical system and connect the wind farms to the grid. With the acquisition of Wanzek and MasTec's existing wind and solar capabilities, we are uniquely positioned as one of the largest service providers in the alternative energy sector.

Now I would like to cover industry specifics. Our installable home market had a solid quarter as DirecTV recently reported that customer gains in the Q4 were their largest quarterly gain in years. While revenues from DirecTV were up year-over-year, we continued to see the positive effect our diversification strategy had on revenue concentration, DirecTV accounted for $120 million or 29% of total revenues in the Q4 2008, versus 44%, in the same quarter last year. In 2009, we expect continued growth from this customer. Effective February 1, 2009, AT&T commenced offering DirecTV as a service to its customers. We expect this to have a positive impact on our DirecTV business since we serve a large number of the markets being affected.

Our communications market will face both challenges and opportunities in 2009. During the Q4 of 2008 we saw significant growth from both Verizon, up 47% year-over-year, and AT&T up 239%, year-over-year. While revenue was down for both Qwest and EMBARQ in the Q4 of 2008, versus 2007, Qwest, Verizon, and AT&T were all up double digits for the full year 2008, versus 2007. While many of our communications customers have reduced 2009 CapEx levels we do see some opportunities. The stimulus package contains over $7 billion allocated for the expansion of rural broadband. We believe this will have a positive affect on our R-US customers as well as some of the larger [R-box] as they further penetrate the rural markets.

We also expect significant growth in our wireless business. Late last year, we were selected as one of the AT&T national turf vendors for wireless construction. Under the turf awarded, we will be responsible for wireless activities in Florida, North Carolina, South Carolina, Tennessee, Kentucky, Alabama, Mississippi, and Louisiana. While that business today primarily services AT&T, we believe there are opportunities with other carriers and have enhanced marketing efforts toward those customers. Our utility infrastructure services continue to make up a greater percentage of MasTec total revenues.

This quarter utilities accounted for 36% of revenues compared to 24% of revenues in the Q4 2007. We see two major areas of opportunities for utility business. The first in transmission line and substation construction. Over the past few months the need to improve the country's transmission grid has received significant attention from our representatives in Washington DC, and from the Department of Energy. While a number of large projects were previously slated to be built over the next few years, we anticipate this increase focus to positively impact the quality of our energy delivery systems and MasTec opportunities to participate in this endeavor.

2008 was also a great year for our country's renewable energy efforts as wind generation capabilities increased by over 8300 megawatts during the year. Wanzek was a significant contributor in the effort generated annual revenues of approximately $400 million, $26 million of which were consolidated by MasTec for the month of December. Excluding Wanzek, our existing wind business generated roughly 9% of revenues in the Q4 and 7% for the year. While the end of 2008 was challenging for wind developers we believe the long-term prospects for the wind energy industry remain very positive. President Obama has set goals of doubling sources of renewable energy over the next three years and meeting 25% of the nation's electricity needs from a renewable resources by 2025.

The first steps towards achieving these objectives were met with the passage of the stimulus bill. The stimulus package contains three key elements which should enhance activity in the renewal energy sector. First, an unprecedented three year extension of the production tax credits through December 31, 2012. Second, a loan guarantee program to facilitate direct project financing. And finally enhancements to the investment tax credits which will give the developers access to 30% of the total cost of their projects. Recently, the American wind energy association published that there is a pipeline of almost 300,000 megawatts of wind projects enough to meet 20%t of electrical needs from wind. Again, the long-term prospects for winds are strong, and as a leader in this developing area we are well positioned to take advantage of the opportunities afforded to us.

Yesterday, we reaffirmed annual guidance and provided Q1 guidance of $350 million to $360 million in revenues and $0.14 to $0.16 of earnings per share. In summary, when I took over as CEO in April of 2007, I made a number of promises to our stakeholders. First and foremost, I promised to improve margins. Second, I promised to reduce customer concentration and diversify into higher margin growth areas. And finally, I promised to strengthen our management team and internal and external accountability to deliver better and more consistent financial results. I am proud to say we kept those promises and continue to transform the company month by month. One common remark when we sit face to face with investors these days is that MasTec is an entirely different company than it was several years ago. Not everyone has been paying attention but MasTec today is a growing more profitable and better managed company from top to bottom. The future has never looked brighter for MasTec. I will now turn the call over the our CFO Bob Campbell.

Thank you Jose and good morning. As Jose mentioned we had a terrific Q4 and frankly a terrific 2008. We expect 2009 to be another excellent year for MasTec.

My financial highlights are as follows. Q4 revenue was up 51%, it was led by growth in our utilities markets, where revenue more than doubled. Q4 was a record quarter our highest revenue quarter and best Q4 ever in terms of net income. Customer concentration and diversification continues to improve. DirecTV was down to 29% of total revenue for Q4, that compares to 44% a year ago, and a peak of 47% in Q1 2008. We only had one month of Wanzek revenue in Q4 but on a pro forma basis with Wanzek revenue included for all three months of the quarter, the DirecTV concentration would have been down to 24%.

The reduction in customer concentration is caused by the growth in wind farm, natural gas and wireless revenue. Q4 G&A expense as a percent of revenue continued its downward trend, it was 5.6% for Q4, versus 6.6% last year. Q4 EPS was $0.26 per diluted share compared to $0.11 last year, so we more than doubled the prior year quarter just as we did for Q3. We had one unusual item negatively impacting Q4. We took a $0.04 per share charge for the retired CEO's final compensation payment. The majority of the charge was non-cash.

Our full year 2008 numbers were also very good. Revenue was up 33% for the year and reached record levels as did net income. Continuing operations EPS was $0.97 for 2008, compared to a pro forma $0.67 last year. The 2007 pro forma backs out the $39 million legacy litigation charge to be operationally comparable. 2008 was a really clean year but we did have$0.04 negative impact for our retired CEO final compensation payment. Therefore, 2008 pro forma earnings of $1 per share are comparable to the $0.67 for 2007. It is worth noting that our original 2008 earnings guidance was $0.85 to $0.90 and our actuals came in much higher.

We acquired Wanzek, a $400 million wind farm and industrial construction company in December, we made four acquisitions in the last year or so at good values and we are excited about their progress to date. Our financial condition and liquidity remains strong, I'll brag a little bit about that later. Our guidance remains unchanged our 2009 guidance remains unchanged from what we issued in October and reaffirmed in December. That's 2009 revenue of $1.95 billion to $2 billion which is revenue growth of 41% to 45%. Diluted EPS for 2009, is $1.05 to $1.15 cents, compared to $0.96 cents for 2008. There are two issues significantly lowering the 2009 EPS. The first is a big increase in the mostly non-cash book tax accrual, and the second issue is the big increase in the noncash amortization expense for acquisition related in tangible assets. I will cover both issues in detail later.

Now for the details, Q4 revenue was up 51%, to $414 million. And fully diluted earnings per share were $0.26 compared to $0.11 last year. We saw an acceleration of revenue with wind, natural gas and wireless customers. Q4 G&A expense continued to improve from 6.6% for 2007, down to 5.6% for 2008. Some of this comes from the benefits of scale, with our revenue growth plus our focus on controlling G&A costs. Also, outside legal fees were only $300,000 this quarter, compared to $1.2 million, for the Q4 a year ago reflecting finally the wind down of legacy litigation we have been predicting. Net interest expense for Q4 was up about $2.5 million, or $0.04 cents per share worse, due to some acquisition debt and lower interest income. I will cover our debt and capital structure in a moment.

For the Q4 of 2008, the ten largest customers were DirecTV, 29% of revenue, down from 47% in Q1, and 44% last year, AT&T at 16%, the growth was helped by our Nsoro wireless acquisition, [ Tetretech]a wind farm customer 8% of revenue, Verizon 7%, One Oak, a natural gas customer at 4%, Duke Energy another wind customer at 2%, Progress Energy 2%, [Sandridge] Energy another natural gas customer at 2 %. EMBARQ 1% and Qwest 1%. Regarding diversification, our top ten customers now include one satellite television customer, four telecom customers, two wind farm customers, two natural gas pipeline customers and one electrical utility customer. Today backlog is $1.7 billion, and that's an 18 month backlog number. The comparable number a year ago was $1.3 billion, one comment about backlog, even though we believe that fiber deployment work will last for many years, our backlog includes only the specific work for which we have current visibility.

Let me talk about our cash flow, financial condition, and balance sheet. Q4 cash flow from operations was $16 million. Following a very robust $29 million in Q3. While we had really good cash earnings in Q4, with EBITDA of $33 million, our cash flow from operations was hurt by investment in working capital. We elected to pay wind and other utilities sub contractors in advance of the Q1 accounts receivable collections. Our cash flow continues to be helped by tax position. Currently we have a federal tax net operating loss or NOL of $185 million, which we can carry forward against our future cash (inaudible) liabilities. Regarding cash taxes, we expect to pay very modest cash taxes for 2008 and for 2009. We expect to pay less than $1 million in cash taxes for 2008. We expect to pay only several million dollars for 2009. Be a partial taxpayer for 2010. And then we may be a full or almost full cash taxpayer in 2011. Our tax position really helps our cash flows in 2009 and 2010.

At year end our accounts receivable day sales outstanding or DSOs were 62 days, that's pro forma using Wanzek's revenue run rate. The modest upward drift in DSO's during 2008 mostly been due to changes in our end market and customer mix. We clearly have more longer duration construction projects now which often have a little higher DSOs. And also we have had a significant ramp up of wireless business with generally higher DSOs. Given our current business mix, our short-term DSO goal is now 60 days or better. It is worth noting that while we want to reduce our DSO's further, I believe our public peers DSO's range from about 65 days to 90 days.

Share one other piece of information about cash flow, let me address our capital spending. After spending $35 million in CapEx in 2008, we do see increased capital spending for 2009 and beyond. We are now much larger in size, and our wind farm and natural gas pipeline businesses are capital intensive than the historical core mon stack businesses. Therefore, we now see CapEx spending for 2009 to be in the 40s. We don't expect to hit or exceed $50 million unless we see a surge in business. We are not trying to forecast today the 2009 impact of the stimulus legislation on MasTec but it can certainly drive up CapEx spending to higher levels. We just don't know yet how much the stimulus legislation impacts 2009. We will provide more insight on CapEx in the future, as we get more familiar with our two new capital intensive business and sort out the stimulus impact.

To summarize our cash flow characteristics I would say this, EBITDA is going up dramatically, collections at 62 DSOs are reasonable, CapEx in the 40s is modest and our tax payments are immaterial. Therefore, our cash flow will be very good. At the end of the year we had a strong financial position with cash, securities available for sale, and the availability of the company's credit facility of $150 million. $18 million of the cash is restrictive.

Now let me talk about our capital structure. Personally I'm pleased with our year end capital structure, and our structure after funding the big Wanzek acquisition. At year end we had $443 million in equity, $304 million of total debt, only $257 million in net debt, that's net of cash, and we estimate $180 million to $200 million of 2009 EBITDA. Therefore all of our balance sheet and credit ratios are in good shape. In addition, we paid our revolver down some since year end and have had good cash collections so our net debt to date is about $235 million. That's total debt minus cash.

Now let me go in to more detail about capital structure. One comment I would like to make is that we are blessed. Our debt is reasonably priced actually very attractively priced and secondly half of our debt matures in 2017 and most of the rest matures in 2013. For a quick review of the debt we have $150 million of 7-5/8 ten-year notes maturing in 2017. That's half of the debt. We have $55 million in a 8% five year convertible note with the Wanzek family, it converts at $12 per share, we expect the note to be converted in to equity but if some how that dun happen it matures in 2013. We had $42 million in draws on our bank revolver at year end. Although it's been reduced since year end to only $20 million today. We were fortunate last July to expand the revolver from $150 million up to $210 million, also we extended the bank line maturity until the 2013. And it is very attractively priced at LIBOR plus 250 or Prime plus 125, it is worth noting that our year end cash balance of $47 million was greater than the outstanding revolver balance.

We have $57 million in other debt, the other debt consists of normal course and capital leases. While there are modest maturities of this debt in 2009, they will likely be replaced by new normal course equipment financing and capital leases. I mentioned a moment ago our $55 million convertible note from the Wanzek acquisition, footnote three in the 10Kdescribes the accounting for that note in terms of earnings per share. We use what is called the if-converted method and we compute the EPS impact of treating the convertible note first as a simple 8% note and then we compare that calculation to treating the note as if it has been converted into equity, then we select the least favorable calculation for EPS purposes. What that means for 2009 is that we add back the $4.4 million of interest on the note, adding back to net income, and that's tax affective, then we add the converted shares which is 4.6 million shares to the share count. The if- converted EPS calculation is always going to be a little bit more negative. For 2008, the calculation had no impact on EPS since we bought Wanzek on December 16th. Future 10Qs and 10Ks will always have a footnote showing this alternative calculation.

On our year end balance sheet, we have $21 million of securities available for sale which are our auction rate securities, we have taken $13 million life-to-date temporary impairment charge against equity to reflect the estimated market value of these securities. We continue to monitor the market value and liquidity for these securities. In our litigation footnote in the 10K, we did disclose we have followed a binding arbitration claim against Credit Suisse, our investment manager, we are asking that Credit Suisse buy back our auction rate securities at par which is $34million. Arbitration is scheduled for May.

Now for your guidance update. As mentioned we are today reaffirming the 2009 revenue and earnings guidance that we issued in October and reaffirmed in December. Our 2009 guidance is revenue of $1.95 billion, to $2 billion, and $1.05 to $1.15 per diluted EPS. That's revenue growth of 41% to 45% and EPS growth of 9% to 20%. I would like to go into some detail about the two items that are negatively impacted the 2009 EPS. First we have a much higher taxable rate for 2009. And second, we will have much higher amortization expense of acquisition related intangibles. Note that the amortization is non-cash, and almost all of the tax expenses also non-cash because of the NOL's. Our book tax rate on the P&L for 2008 was 1%, and we now expect the 2009 book tax rate as a percent of pretax earnings to be in the low 20s. Also our amortization expense of acquisition related intangibles, will grow from less than $4 million, in 2008, to about $9 million for 2009. The impact of the jump in tax rate and amortization expense significantly impacts EPS. In fact these two items have a roughly $0.30 to $0.45 negative impact on 2009 EPS. That's why we wanted to highlight the growth in EBITDA from $110 million in 2008, up to $180 million to $200 million in 2009, that's a year-over-year increase of 63% to 82%.

Now I would like to make a couple of comments about the profit margin that's implicit it in the 2009 guidance and profit margin trends. First let me talk about pretax margin which we think is useful since we do not currently pay any significant amount of cash taxes. Our pretax profit margins have grown from 4.4% for 2007 to 4.9% for 2008. And the margin in our 2009 guidance is 5.5% to 6%. And note that the 2009 pretax margin is burdened with $9 million of non-cash amortization of acquisition intangibles. EBITDA margins have grown from 7% in 2007, to 8% in 2008, and the EBITDA margin implicit in the 2009 guidance is 9.2% to 10%. It is worth noting that when Jose Mas took over as CEO almost two years ago he said that our short to medium term pretax profit margin goal was 6% to 8% and upper end of our 2009 guidance hits that goal.

Now let me switch gears for a moment and address seasonality as it impacts quarterly earnings. As I said earlier, we have become more seasonal for several reasons, and going forward you should expect proportionately less of MasTec's full year earnings in Q1. Before I go through the reasons for or increase in seasonality, please keep in mind MasTec has always been some what seasonal with relatively low earnings in the Q1. Historically we have had soft Q1s because of winter weather because some of our customers are slow in finalizing their new year spending budget and even slower in giving out the work .

Now let me tell you the reasons why we are more seasonal to date than we used to be. First we have now have proportionately far more business in northern areas than we used to. Wanzek is a Fargo, North Dakota based company with great operating strength especially if the northern Midwest and our power partners wind business is also generally in very north areas and via our three phase electrical transmission acquisition we do significant work in new England. Therefore our revenue base has switched but a northern presence versus our previous mostly sun belt revenue base.

Secondly historical revenue pattern for our new wireless business reflects a slow start to year each year with revenue accelerating as the year goes on, and that is what we expect to happen also in 2009. Third, we now have proportionately higher levels of depreciation and acquisition amortization which is straight lined of course and therefore it will be more of a drive on our lowest revenue quarter than the other three quarters. Depreciation is proportionately up as we have become a little more capital intensive with our business mix. Finally, clearly have been projects delayed so that that our customers can find the best way to get the most out of the stimulus package. I've gone into quite a bit of detail on seasonality but I thought you needed to know more about the changing characteristic W.

With that long preamble, the Q1 guidance. We now see revenue for the Q1 2009 to be between $350 million and $360 million with diluted earnings per share ranging from $0.14 to $0.16. And that's up from $0.12 for Q1 2008. Our shift in seasonality in no way impacts our view of full year guidance, we just see shifts among the quarters. The Company's guidance assumes continuation of today pretty awful economy and is not dependant on a recovery. On the other hand does not assume an economy getting significantly worse than today. Our guidance also does not include any additional impact of our legacy litigation or any mark-to-market valuation adjustments on option rate securities. These items are excluding positive or negative.

In closing, just to echo what Jose said we had a great Q4, in 2008, and we also expect to have a even better year in 2009. Our revenue is growing, diversification is putting more reliability in a greater spread of risk in to our business model. We will continue to reduce costs and become more efficient, and we expect improved earnings, improved margins and improved cash flows. That concludes my remarks, now let me turn the call back to the conference operator for the

Thank you. (Operator Instructions) We will take your first question from Alex Rygiel with FDR Capital Markets.

Congratulations on a great quarter and more importantly a great year.

Thank you, Alex.

Couple of questions, first is there anything to learn as it relates to the mix in backlog any different than the historical trends in revenue?

No with the exception, Alex,that we are in a lot of new businesses so the new businesses so it's pretty close to the percentage of the revenues of the business. Not huge shifts from a backlog versus where we saw them from a revenue perspective.

And noting that [Tetretech] was a large wind customer can you give us additional color on possibly what the customers were underneath the [Tetretech] umbrella and how you expect that relationship to develop over the coming years?

As we look at our wind business in both Wanzek transaction and our original entry into the wind side we are going see a lot of customer rotations so you are going to see customers have projects one year and may not have a significant number of projects the following years. As we look at our business model you are going to see a lot of wind developers or GC's come in and out of that top ten quarter to quarter depending on what they have going on. I think [Tetretech] has been vocal about the jobs that they were doing for Pacific Corp. So we were obviously supporting them on those jobs. But I think over the course of the next couple of years you are going to see new names and old names come back and forth in and out of that top ten.

And staying on the wind topic, since the passage of the stimulus bill how have your conversations changed with wind customers, do they seem more excited? Are they letting out bids?

We've seen a dramatic increase in activity, obviously the end of last year and beginning of this year activity was slow, for many reasons many of which we laid out today. Slightly before the stimulus package was passed and the initial drafts were out there, we saw dramatic increase in our customers reaching out to us in terms of getting pricing, getting a feel for projects in different geographies and what pricing would look like in those, there is no question that in the last 6 to 8 weeks we seen a dramatic shift in the activity.

Lastly, [Texas Cres], any update on the timing and chance you could frame what you think MasTec opportunity is as it relates to Texas Cres]?

Obviously it's great for the industry, we are excited not only about [Texas Cres] but everything that is happening in the transmission business. We took a different approach in 2008 of triage to organically grow that business which I think we did a fantastic job of doing if 2008. We expect to get our fair share of projects, obviously we are smaller in that arena than others but we expect to a participant and we expect to be a participant in Texas as well as a couple of other geographies.

That's perfect. Good luck in 2009.

Thank you, Alex.

We will take our next question from Michael Novak with Frontier Capital.

Good morning, good quarter and good year.

Thanks, Mike.

First question is the incremental $5 million in amortization associated with Wanzek, I assume that's your amortizing the backlog so how quickly would you expect to burn off?

There is two and three calculations in the intangible backlog as one and it burns off basically over a year or two over the duration of the backlog. But in addition to that, we generally have things like trade names and customer relationships that may be amortized over ten to 15 years. One part of it does draw off rather quickly. I think there is a table in the 10Q that shows $9 million for next year, for '09. And only roughly $7 million for 2010.

Great.

After that it drops off, it continues to drop off.

And Jose when would you expect the least interest and activity that everybody is talking about in the wind industry to start to translate to increased business levels?

You know I think two things, Mike, one is I think you are going to see a lot of projects that were in process that will be sped up. So in other words, a lot of people were holding back on projects to see what the stimulus did and how they could best angle themselves to get as much out of the stimulus as possible. In those cases we been awarded projects since the passage of the stimulus bill. In terms of really seeing enhanced activity across the board with new projects the bidding activity, aside from just the RFQs and pricing, actual bids and negotiations are underway and we think we are going to see awards shortly.

And have you included the impact of that in your guidance or would you say your guidance was sort of steady state of the business prior to the stimulus bill passing?

I think went we did our guidance we did not include the stimulus the stimulus wasn't even on the board when we originally issued guidance. We are not anticipating in our guidance a dramatic increase in activity levels. Obviously there are a number of projects that we expect to do in 2009 based on what our customers have told us for months. There is no question those projects even though we think would have happened any way are going to be helped by the stimulus, so obviously normal activity is included in the guidance, but enhanced activity based on the additional work that the stimulus brings is not necessarily in our guidance today.

Could you talk a little bit about from a geographical perspective of positioning of Wanzek, which is stronger in the upper Midwest, versus the Texas market, and your opportunity to improve their positioning in the Texas market going forward?

Yeah, just couple of points, A, we feel that we can do a project anywhere in the united states and do it effectively, efficiently and perform at a high level for our customers, that's the most important point we think we can do work anywhere. But there is no question that historically Wanzek has had a better reputation or more of a reputation as being a northern Midwest contractor than they have as a southern contractor and what we are seeing in the wind industry is a shift of where the projects are going. Historically Texas has been by far the largest producer of wind because of the very public transmission issues that they have in Texas a lot of developers are now moving their '09 and '10 plans out of Texas and into other areas which happen to benefit Wanzek in a greater way because of their strong reputation in some of those markets. So there's no question that that's going to have a positive impact on us, our challenge is positioning al of MasTec in a way where wind developers all across the country feel we are a viable alternative to do their projects.

Congratulations and we appreciate the strong results.

Next question from Liam Burke Janney, Montgomery, Scott.

Thank you. Jose, Bob pieced together between the income statement working capital and capital budget a fairly strong free cash flow profile for 2009. What would be the priorities based on your current outlook for the uses of that cash?

First it feels great to be in that position. Second I think as we look at the end of 2007 going in to 2008, we knew we had a tall order we knew the things we wanted to accomplish we knew the businesses we wanted to get in to and to achieve our goals we were going to have to be acquisitive which we were in 2008 and we did it successfully. At the end of 2008 going in to 2009, obviously I think we in a very different position where the deals that we made, the acquisitions that we made have really positioned us for some what we think are some fantastic organic growth opportunities which we are going to develop and hopefully execute on.

So we go in to '09 with different priorities we go in to '09 knowing we don't necessarily have to do acquisitions, knowing we are going to build a nice war chest, also knowing that we have no--there is no debt to pay off because there is no maturity. So with the exception of normal course equipment financing the debt doesn't mature for years. And we don't envision ourselves paying the date death off early. So we are in a privileged position of generating cash and having a cash balance that's growing. I would say that in 2009 we are going to be opportunistic, so to the extent we think there are deals out there that benefit the company and put us a different strategic position in terms of an industry we want to go after or continue to grow into, we will look hard but I think we are not in a position where we have to do something but where we can be choosey and do nothing if we want or ultimately do something because it's such a great deal.

Great, thank you.

Thank you.

Next question comes from Eric Kainer with ThinkEquity

Thank you very much for taking my call. Congratulations on a fantastic Q4.

Thank you, Eric.

As far as Wanzek in the Q4, sounded like that did roughly $130 million, pro forma, obviously $26 million wound up in your income statement. What should we expect that that will add on a quarterly basis for OpEx?

So just to clarify that number, Eric, we did about Wanzek did $100 million the Q4, $26 million that MasTec reported and between the months of October and November, they did roughly $75 million. Wanzek as Bob stated is seasonal. If you looked at-- if you're able to see Wanzek's historical results see that they have a slow Q1, mildly picking up in Q2, with a very very strong Q3 and Q4, just to put it in perspective, in their Q3 of 2008, they did roughly $150 million in revenue. There is no question that it's a seasonal business, it's seasonal because of the geographies they've covered, they've traditionally covered. And one of our challenges is going to be to make them less seasonal, to pick up more work to have stronger Q1s and Q2,s but as you look at the business it's going be a slow Q1, modestly picking up in Q2, and then extremely strong Q3s and Q4s. With Q3 being their highest revenue quarter of the year, that's a lot to do with their geography.

I would assume though that the OpEx is relatively more consistent quarter to quarter. Should we expect that effectively the operating margins and the gross margins are maybe a little bit higher than historic MasTec backing in to the op ex-number then?

Obviously we published our results separately, you can see there is no question that the margin profile is better than historical MasTec numbers. I do think that their margin trends do follow their seasonality of their business. Q1 is a difficult quarter for them. Wanzek was obviously accretive for us, even in the month of December, as we look at Q1, Wanzek is dilutive to earnings. As we look at the year again, the mix is going to follow, Q1 will be weaker, as Q2 goes in and starts to ramp up margins get significantly better, Q3 margins get better, and have very good margins in Q4 as well.

On wireless obviously sounds like you're queueing for a lot of growth but obviously off to a slower Q1 I think we've heard that from guys exposed to wireless construction. Have you picked up contracts with any other service providers outside of AT&T there that are of a material level?

We do to work for other customers not necessarily-- obviously AT&T is going to be a big customer of us on the wireless sector, at this point no one customer really makes up a material number although we expect that and hope that will change. We stated today we picked up eight states for AT&T, they've been obviously-- their CapEx numbers are very public, I think one of the positive trends that we will see in the industry is that the big players are going to invest in the wireless network as those are really the assets that are growing for them from both the revenue stream and income stream. So we think we've got significant geography, we think we've got a fantastic geography based on customers, and trends, so we think that we've said in the past we expect the business to do well over $200 million in 2009, we've sat with our customers gone through the budget and our expectation continues to be that we will do well over $200 million in 2009.

Great, we look forward to that, congratulations and good luck.

We will take our next question from John Rogers with D.A. Davidson & Co..

Hi, good morning. Congratulations as well on a great quarter.

Thank you, John.

Couple of things, first of all, Bob did you say what total DNA expected to be for 2009? I got the depreciation number.

For the amortization number. Yeah, give me a second and I will give you a good estimate of that.

Do you have another question?

And the second thing is, can you give us a sense of the backlog the $1.7 billion, how that's broken down between wind, gas, and some of the wiring structure?

John we haven't broken it out, what I can do is try to take you through time of where that's historically been. If we look at Q4 of 07, it was roughly a billion three, stayed steady throughout the first, second and third quarter of '08 and at roughly$1.4 billion and obviously $1.7 billion at the end of the year. Some of it is obviously driven if you look at the growth from Q3 to Q4 obviously we made the Wanzek acquisition in that period that's a significant piece of that increased level. But you know, I I don't think there has been much of a change in the mix of our backlog from where it's been historically and from where our revenues are. As a percentage of total revenues for each business.

John?

Go ahead,.

The '09 depreciation should be in the range of $35 million to $38 million based on the CapEx I talked about, and just as a point of information that was $25 million for the actual for '08.

Okay. $9 million in amortization?

Right.

Okay.

Up from about little under $4 million in 08.

Okay. But just sorry back to the backlog for a second. I guess what I'm trying to understand is the relative risks that are contained in there. Is it fixed price contracting? Or is it all materials plus on some of these larger projects. What is your margin risk exposure there?

What we include in backlog are, in our MSA contracts we take a look at where we currently are in that business and where we expect revenues to be over the 12 and 18 month period. If we see revenues declining, obviously the backlog relative to that contract reduces. We include all project revenue for those projects in which we have a signed contract. We do not take a lot of material risk we almost don't take any materials risk. We bid for a project. We give our customers a price for that material, we backstop it with whatever material vendor is providing that material. So we don't have-- especially in our bigger contracts-- we don't have long open ended contracts exposed to changes in material prices.If you look at our project work both in natural gas pipeline and wind sector we don't have multi-year projects we don't have projects where we are going to with on the same project for two or three years and susceptible to changes this the environment. Most of our work is short-term, six months or less, some of the wind projects go on 9 to 12 months but that's our longest project is still probably under 12 months in any given period of time.

Okay. In terms of pricing pressure in those markets? Some other contractors have talked about seeing increased price pressure, push back over to fixed price contract. Have you seen any of that?

We haven't. There is no question that in general a lot of prices have come down from a material perspective as you're contracting new work, from a owner perspective are coming down that's absolutely true because the raw materials prices have come down, from a labor perspective we haven't seen significant pricing pressure in each business is different, so we are not going to say we haven't seen any because we seen some. But for the most part prices have held steady.

Great. Thank you very much.

Thank you, John.

We will take our next question from Simon Leopold with Morgan Keegan.

Wanted to see if you could clarify the expectation for the basic and diluted share count for the Q1?

Okay. The share could count at year end was 75,000,455. That's the basic, and I think for the Q4 we had 744,000 shares of common stock equivalence in the diluted calculation, and then in the if-converted on the Wanzek convertible note is 4,583,000 shares, relating to that. Then anything else would be an increase in the stock price causing common stock equivalence to go up or any exercise of stock options.

Thanks. I wanted to take a look at what is going on in gross margin, in the Q4 was a bit lighter than we would have expected particularly given low fuel prices, just wondering if you could talk to what is going on with gross margin particularly around utilization of the staff and how that might jump around relative to revenue and new seasonality, thanks.

Simon, at the end of the day we talked about for the last couple of years for the real focus point for our business and the way we manage the business really comes down to operating income and pretax income. I think as we look at the different businesses that we've acquired, the gross margin profile is actually extremely different, some of-- if you look at the SG&A has come down nicely over the last couple of years that has to do with some businesses that also have low SG&A rates, so thus on a lower gross margin rate they are still making attractive pretax margins.

So I think that at the end of the day we laid out for two years now what we think are very achievable targets from a pretax income perspective of 6% to 8%, we continue to strive to achieve that, part of that will continue to come from scale and part of that will obviously come from productivity gains that will show up in the gross margin line.

But is is fair to assume a similar gross margin in Q1 versus Q4 even though the revenue is down?

I think as you look at--historically Q1 had the lowest gross margin of the year. I think that that is probably continues to be a fair assumption. If you look at the Q1 of last year, SG&A was obviously a lot higher than SG&A will be in the Q1 of '09. So-- and pretax margins will be somewhat similar, so we are probably expecting a slight dip in gross margin for Q1much like what you saw in Q4.

Great, just one last one you gave us helpful insight to understand the seasonal pattern, of Wanzek and Nsoro and if I layer this on top of your full year guidance, it sounds like you're anticipating roughly $1.2 billion in the second half of the year. Just want to make sure I'm thinking about how you are discussing the trends correctly. Thanks.

Roughly those numbers are close. I think if you look at you know where we would have been in Q4 with the Wanzek revenues added it was nearly $500 million. We expect this Q4 2009 to be stronger than the Q4 2008. I think you picture in the Q3 would have been significantly higher, our Q3 revenues were roughly $400 million, we said Wanzek's were roughly $150 million, so that was about $550 million on a pro forma basis we were close to a $1.1 billion this year in 2008. So I think as you directionally look at 2009, that's roughly in the ballpark.

Thank you for the clarification.

Thank you.

We will take your next question from Benny Alexandra with Pritchard Capital.

Good morning. I have a question for you on the pipe side of the business with metro gas prices where they are, what do you see the segment, what do you hear from clients, and in the new gas shale plays, do you see new demand out there or demands out there?

So there is no question that even if we look at last last year going into this year activity had slowed in the pipeline business. Surprisingly, very similar to the wind business over the course of the last couple of weeks, increased activity in terms of new projects both going in for proposals and bids and negotiations, a lot of them related to the new shale plays we are seeing most of that work continues to be around the new shales which is where we have done all of our work historically. We went in to 2009 with some very nice backlog in that business. But there is no question that that business has become more challenging as natural gas prices continue to fall. We condition to be feel strongly about that business long-term, we think that that business will rebound and rebound nicely as the year progress. But it was a slower start to 2009, we are seeing recently seen enhanced activity in that marketplace.

Thank you.

We will take your next question from Mickey Schlein with Ladenburg Thalmann & Company Inc.

My question has been answered thank you.

That concludes the question and answer session. At this time I will turn the conference back over to Jose Mas for closing remarks.

Again I would like the thank you for your participation on today's call. I look forward to talking on the Q1 call. Thank you.

That does condition conclude today's conference call, thank you for your participation