MasTec Inc (MTZ) 2009 Q3 法說會逐字稿

Welcome to MasTec's third-quarter 2009 earnings conference call, initially broadcast on October 29th, 2009. 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?

Thank you, Clayton.

Good morning, everyone, and welcome to MasTec's Q3 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 in the industries where we operate. These forward-looking statements are the Company's expectations on the date 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.

Various risks, uncertainties, and assumptions are detailed in our press release filings with the SEC. Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may differ significantly from these expressed or implied in this communication.

In addition, we may use certain non-GAAP financial measures in this conference call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release or in the investor relations section of our Web site located as mastec.com.

With us today, we have Jose Mas, our 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 announcements by Jose, followed by a financial review from Bob. These discussions will be followed by a Q&A period and we expect the call to last approximately 45 minutes.

Jose?

Thank you, Marc.

Good morning, and welcome to MasTec's third quarter call.

Today, I'll be reviewing our financial results for the third quarter as well as providing an outlook for our different end markets.

First, some third-quarter highlights. Revenue for the quarter was $397 million. Net income was $21.6 million or $0.27 per share. EBITDA was $38.7 million for the quarter. Gross profit margins improved both year over year and sequentially. And cash flows from operating activities were $32 million for the quarter. Based on the current economic condition and the level of activity in our markets, we believe we had an excellent quarter.

While 2009 has been and continues to be a challenging year, we believe we have uniquely positioned the Company to take advantage of significant growth opportunities in a number of our businesses. While we continue to see softness in 2009, we are very encouraged at what we are seeing entering 2010.

For example, our renewable business has had significant wins in the quarter and we are now entering 2010 with more backlog than we actually completed in 2009. The solar, biomass, and geothermal industries are all seeing increased activity and we believe the initiatives the government has taken will have an impact on those industries in mid to late 2010.

Bidding activity in the electric transmission and natural gas markets has increased and visibility is improving. Our wireless customers are increasing their investments and are rapidly moving to upgrade and improve their networks.

As we stated last quarter, at no point in the Company's history have we ever had the magnitude and diversity of business opportunities that we are seeing today. As we look at the balance of 2009, we will continue to closely manage the business and make the right staffing decisions. While we have right-sized a number of our businesses to reflect their current revenue levels, there is no question we are underutilized and preparing for growth in a number of our businesses.

In spite of that, we have been able to grow gross margins. We believe that our diversification efforts over the last couple of years and the new businesses we have entered uniquely position MasTec as a beneficiary of many of the changing trends in the markets we serve.

I would now like to cover some industry specifics.

Within our communications group, DirecTV accounted for approximately $123 million of revenue, a year-over-year and sequential increase but a softer number than we expected. We believe DirecTV has performed extremely well in light of economic and housing issues and we expect that improvement in the housing market will have a favorable impact on our business.

The wireline market can be split in two categories, maintenance and fiber-related. The maintenance business continues to struggle but we believe we have seen bottom. There are pockets of improvement but we expect those improvements to be moderate and expect the business to be flat for the foreseeable future. The fiber-related business also had significant challenges in 2009, as many of our largest customers have been shifting CapEx dollars to their wireless businesses.

However, we are hopeful that between the Federal Broadband Stimulus Initiative and expansion of fiber to the cell sites, activity will increase on that portion of the business in 2010. We expect an announcement of the broadband stimulus winners by the end of the year.

The wireless market continues to ramp and perform well. Business was up sequentially by over 30% in the third quarter and we expect the business to be up again in the fourth quarter by over 20%. Wireless data consumption is dramatically increasing, forcing carriers to invest in their infrastructure to meet demands. We expect accelerated demand in 2010 and believe we are well-positioned in this market for future growth opportunities.

In our utilities market, distribution spending is similar to wireline spending. 2009 has been a challenging year with reduced levels, but we expect current levels to hold or show slight improvement. The government recently announced some significant awards related to Smart Grid applications. We are currently working with our clients to identify opportunities for MasTec.

In both the electrical transmission and natural gas markets, we continue investing in building those businesses and believe we have positioned ourselves nicely. We continue to see increased levels of activity and visibility is improving.

The industrial market performed well. Our 100-megawatt combined heat/power plant project continues to progress and we feel that this is an important project as we build up our industrial portfolio.

We are also seeing a strong pipeline of projects in the biomass, geothermal, and solar fields.

Moving to our renewable business, 2009 has been a challenging year. It's been a year where we have focused on positioning the Company for the future and getting ready for what we believe to be a spike in demand. We are beginning to see the fruits of our labor.

During the quarter, we have been awarded over 600 megawatts of new projects. To put that number in perspective, Wanzek, our renewable construction arm, completed approximately 1,000 megawatts in 2008, the year we bought them. Our recent wins puts backlog going into 2010 at 640 megawatts.

We also expect award activity to remain strong. We are actively bidding or negotiating a similar amount of projects and expect 2010 to be an excellent year for our renewable business.

We also expect that legislative efforts can have an incremental impact on the business. As the health care debate comes to an end, we expect the focus to shift to the energy bill. We believe the issues addressed will include transmission line construction as well as a national renewable portfolio standard. Both could be potentially very positive for the renewable business.

Other initiatives include the grant process and the loan guarantee program. While grants to date have focused on mostly completed projects, we expect future grants to have more meaningful impact to the business. Also, the loan guarantee applications came out on October 7th. Applications will be comprised of a two-step process. Once companies go through the eligibility phase, they will be allowed to make a full application. Applications will be accepted starting in November and a key component of eligibility is that construction must commence before September 30th of 2011 to qualify.

In summary, we are pleased with our results. More importantly, we believe we are extremely well-positioned in what we think are the right markets at the right time.

I will now turn the call over to our CFO, Bob Campbell. Bob?

Thank you, Jose, and good morning.

I'm going to cover four areas today, Q3 financials, year-to-date financials, earnings guidance, and our liquidity and capital structure. I'll mention a few highlights first and then I'll drill down into the details.

For Q3 my highlights are, Q3 revenue of $397 million was flat with last year's Q3. Q3 EBITDA of $39 million increased $3 million over last year. EBITDA margin for the quarter improved from 9.1% last year up to 9.7% this year. Gross margin continues to improve. It was 15.6% for Q3 versus 15.0% last year. G&A as a percent of revenue was flat with last year's third quarter at 6%. That's pretty good with flat revenue and excess capacity. EPS of $0.27 was down from $0.35 in Q3 last year. The decline in EPS was caused by increases in depreciation and amortization, interest expense, and also a higher share count.

These items reflect the cost of adding major capabilities in new growth markets while we go through a soft market and have excess capacity. And also, we are incurring the cost of parking excess cash on the balance sheet.

Quarterly cash flow from operations was $32 million, an increase of $3 million versus last year.

My year-to-date highlights are, EBITDA for nine months was $103 million, a 32% increase over last year. Cash flow from operations doubled over last year from $43 million last year up to $86 million this year.

Regarding earnings guidance, we're raising it from $0.85 up to $0.88.

Regarding our capital structure and liquidity, you should note the following. Cash has doubled since last year, up to $95 million at 9/30 compared to $45 million at Q3 last year. Liquidity measured by cash and availability on our bank line was up to $183 million at 9/30, up substantially from $108 million at 9/30 last year. And finally, our capital structure, our liquidity, and our key financial ratios are all in good shape today.

Now for the details. Q3 revenue was flat year over year at $397 million. Increases in installed-in-the-home and wireless were partially offset by weakness in most of our other markets. And also in Q3, we saw continued stimulus-related delays in alternative energy project spending, although as Jose mentioned, we're now starting to see positive movement.

Gross profit margin improved from 15.0% last year up to 15.6% this year. The improvement reflects continued productivity gains and lower fuel costs.

Depreciation and amortization expense of $10.8 million was up $3 million for the quarter reflecting primarily the growth in fixed assets. But another driver was $1 million increase in amortization expense for acquisition-related intangible assets.

For Q3, G&A expense was flat with last year at 6% of revenue. With flat revenue and excess capacity, we were very pleased to be flat.

Net interest expense for Q3 was $5.8 million compared to $4 million last year. And that was due to higher debt and lower interest income. I'll talk about our capital structure a little later.

Q3 tax expense was lower than we had anticipated and was only $500,000 for the quarter. The reduction was a result of further refinement of our NOLs. I'll talk about our future book tax rate accruals in a moment.

As I mentioned earlier, EBITDA was up $3 million while EPS was down. The drop in EPS is due to higher depreciation and amortization expense, higher interest expense, and a higher share count. In a nutshell, we're paying a short-term P&L price for our expansion into alternative energy and industrial construction via our Wanzek acquisition. That's while we go through a period of excess capacity and underutilization. And a lesser factor is parking excess cash from our convertible note offering on the balance sheet.

Note that I said we're paying a short-term P&L price for the Wanzek acquisition. For the record, we believe Wanzek is a terrific acquisition and we're thrilled to have the opportunities we see in alternative energy and industrial construction.

For the third quarter of 2009, the ten largest customers were, DirecTV was 31% of total revenue. AT&T was 19% of revenue, up from 15% last year. The growth is coming from our relatively new wireless business. Verizon was 5% of revenue. FP&L, Duke Energy, and Great River Energy were each at 4%. We're doing a combined heat and power plant for Great River Energy in North Dakota. Iberdrola was 3% of revenue. Mortenson, Dominion Virginia Power, and Progress Energy were each at 2% of revenue.

Regarding diversification, our top ten customers now include one satellite television customer, two telecom customers, four wind farm customers, and three traditional electrical utility customers.

Today, backlog is about $1.8 billion and that's an 18-month backlog number. The comparable number for Q3 a year ago was about $1.4 billion. And it was about $1.7 billion last quarter. Remember that since about 60% of our revenue comes from master service agreements or other contracts for continuing services, our backlog includes an estimate of the next 18 months' revenue from those contracts.

As I mentioned, about 60% of MasTec's Q3 revenue came from what we call master service agreements or other similar contracts for recurring services. Therefore, unlike many other construction companies, we have a large base of contractual, non-project, generally recurring revenue. These master service agreements are generally for three to five years and generally are exclusive for a stated geographical territory. None of them have revenue guarantees, but the revenue is reasonably predictable.

Having said all of that, as Jose said, MSA maintenance work for both electrical utilities and telecom wireline customers is still very soft as a number of our customers are trying to spend minimal dollars on maintenance.

Now, let me talk about our cash flow and our balance sheet through quarter end. Third-quarter net cash provided by operating activities was about $32 million compared to $29 million last year. And year to date, net cash provided by operating activities doubled to $86 million compared to $43 million a year ago. The improved cash flow from operations primarily comes from higher EBITDA and a reduction in accounts receivable.

Our cash flow continues to be helped by our large tax NOLs. First, let me cover how the NOLs impact our cash taxes and then I'll cover our book tax accruals which will be dramatically higher than our actual cash taxes.

Currently, we have a federal tax net operating loss, or NOL, of $168 million which we can carry forward against our future cash tax liabilities. Because of our NOLs, we expect to pay only minimal cash taxes for 2009 and 2010. Based on our current internal projections, we will now likely exhaust our NOLs some time in 2011. So we would expect to pay some cash taxes on our earnings for 2011 but less than would normally be paid. And then by 2012, we expect to be a normal cash taxpayer. Our tax position really helps our cash flows for 2009, 2010, and 2011.

As I mentioned, our book tax accrual rates will be much higher than our actual cash taxes. In recent years and through Q3, we have had negligible tax rates for financial statement purposes. However, we have just about run out of unrecognized tax benefits for book purposes and therefore, our financial statement tax rate for Q4 will approach 40%. And then, for 2010 and beyond, we estimate that our book tax rate will be between 40% and 41%. But as I mentioned, our financial statement tax rate will basically be noncash until sometime in 2011.

I hope I've been clear about cash taxes and financial statement tax rates. If you're unclear on this rather complex topic, give me a call later and I'll walk you through this again.

At quarter end, our accounts receivable day sales outstanding, or DSOs, were 64 days, up one day from last quarter but flat with Q3 last year. Given our current business mix, our goal was to reduce DSOs to 60 days or better. Four days doesn't seem like much, but 60-day DSOs is a real stretch goal given today's economy. Every day of DSO is worth over $4 million in cash.

Regarding capital spending, we have only spent $16 million year to date, significantly lower than initially expected due to the slower ramp up of business in 2009 and conservatism in our original estimate. We're now estimating CapEx to be in the low 20s for the full year. If you will remember, we originally estimated 2009 CapEx in the 40s which shows that we do have some ability to flex down in soft markets. We spent $35 million on CapEx in 2008.

We do, however, expect increased CapEx spending for 2010 and beyond. We are now much larger in size and our wind farm and our natural gas pipeline businesses are more capital intensive than the historical core MasTec businesses. We'll share a 2010 CapEx estimate with you when we give 2010 earnings guidance.

To summarize our cash flow characteristics, I would say this. EBITDA is going up nicely. DSOs are reasonable and steady. CapEx in the low 20s is modest. And our tax payment should be immaterial through 2010 and then only partial for 2011. Therefore, our cash flow should be very good.

And as I mentioned earlier, our cash balance has doubled since Q3 of last year. At 9/30 we had $95 million in cash. At the end of the quarter, we had good liquidity with cash and availability under the Company's credit facility, totaling $183 million compared to $108 million a year ago.

Now, let me talk for a moment about our capital structure. As a quick capital structure summary, at quarter end, we had $504 million in equity, $310 million of total debt, only $214 million in net debt -- that's net of cash. And we expect to have $145 million to $150 million of 2009 EBITDA. Therefore, all of our balance sheet and credit ratios are in very good shape.

I'd like to note two things about our capital structure. First, we have no significant debt maturities until 2013, 2014, and 2017. And second, all of our debt has attractive interest rates. To give you a little more detail, our bank line matures in 2013, but of course, we intend to roll it over then. The convertible notes mature in 2014 and our senior notes mature in 2017. And as I mentioned, our debt is very attractively priced. We currently pay LIBOR plus 225 on our bank revolver, only 4% on our convertible notes, and 7.625% on our senior notes.

When I step back and look at transformation at MasTec over the last couple of years, here's what I see. We've been able to expand into a number of new markets with excellent growth potential, dramatically reduce our DirecTV concentration, improve our operating cash flows while maintaining good liquidity and a solid capital structure.

Now, let me cover some details about our guidance. Our 2009 earnings guidance is revenue of about $1.550 billion and fully diluted EPS should be in the $0.88 range. We've adjusted our revenue estimates downward to reflect Q3 actuals and our current Q4 outlook. Q4 should be about $425 million in revenue and about $0.20 of fully diluted EPS.

I'd also like to make a couple of comments about the profit margins implicit in our 2009 guidance and about our profit margin trends.

First, let me talk about pre-tax profit margin which we think is a good measurement for us since we do not pay any significant amount of cash taxes. Our pre-tax profit margins have grown from about 4.4% for 2007 to 4.9% for 2008. And the margin in our 2009 guidance is 5.1%. And note that the 2009 pre-tax margin is burdened with about $10 million of non-cash amortization of acquisition intangibles.

Our EBITDA margins have grown from 7% in 2007 to 8% in 2008. And the EBITDA margin implicit in our 2009 guidance is about 9.4% to 9.7%. As a reminder, our short to medium-term pre-tax profit margin goal, is 6% to 8%, and our EBITDA goal is to hit double digits.

We continue to believe that our goals are very attainable although it's obviously difficult to hit them in this soft economy. The Company's guidance assumes continuation of today's pretty awful economy and is not dependent on a recovery.

The guidance assumes there will not be any significant stimulus impact on our markets for 2009. Our guidance also does not include any P&L impact from legacy litigation or our auction rate securities. These items are excluded either positive or negative.

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

(Operator instructions.) Our first question comes from Michael Novak with Frontier Capital. Your line is open.

Good morning.

Morning, Michael.

Two questions. The first is, you've mentioned the excess capacity that you're keeping on board looking to 2010. Can you give us a sense of how much that's impacting operating income today?

You know we can, Michael. It's a difficult number to obviously compute because it's not just the cost that you're incurring today but obviously the loss of profits on the work that they could be performing if they'd be busy. So we kind of think that we're looking at 50 to 100 basis points of margin based on what we would say is underutilization today.

And then, the second question I had is on the renewable side. I think you said your current backlog is -- for wind is 640 megawatts and that compared to the 1,000 that Wanzek did in '08. How much did -- does it look like Wanzek's going to do this year?

So just to be clear on the 640, 640 is what we'll be taking into 2010. It's currently a little bit higher number and some of it will be completed throughout the balance of 2009. So at this point, most of the work that we've been awarded over the course of the last couple of months is really work that's going to hit in 2010. So we're kind of counting it that way. We're going to end up doing less than 640 megawatts for all of 2009. The number's probably somewhere between 500 to 600 megawatts.

Okay. And what -- I missed this -- but I think you said the additional amount of megawatts projects that you're bidding on today?

We're seeing that level of activity in bids and negotiations right now which is extremely active because we're going to see projects throughout all of 2010 we believe. So we think that, obviously, the number could grow substantially over the course of the next quarter or two. And we're very excited about that.

Okay. Thank you.

Thank you, Michael.

Our next question comes from Alex Rygiel with FBR Capital Markets.

Thank you. Good morning, gentlemen.

Morning, Alex.

Pretty good quarter in a tough economy so I want to congratulate you on that. But, clearly, the highlight appears to be the backlog that's building in your wind business which correlates with your positive commentary about the outlook in that space. So it sounds pretty exciting.

Can you put a little bit more color on the recent wins in the quarter, maybe talk a little bit about the top customers or the top projects that you're going to be working on? And put this in context with regards to your expectation for project start dates and completion dates?

So one of the -- one of things that we debated going into this call and one of the challenges for us is we're in a very active bidding cycle, as we speak, with a number of these customers. And we want to be very careful that we don't say a lot about the customers or the projects or the dollars associated with the projects because we don't want to give away too much competitive information.

But what I can say is, it's obviously a fantastic quarter and I think we've even been surprised by the number of wins in the short amount of period, and more importantly, about what we're currently seeing today and what the outlook continues to look like.

Historically in the past, we've kind of given numbers of $300,000 to $400,000 of megawatt of type of work that we perform. I think those are ballpark numbers that you can pretty much use at this point. Some of the work will actually begin very late in the fourth quarter. It won't be meaningful from a revenue perspective, but it obviously gets us working and really gets us off to a good start in Q1.

So all of the work will start between December and the March-April timeframe for the projects that we announced today. So again, we're pretty excited. We think a couple of others will fall in between now and the end of the year. So we expect to be fairly active the first half of next year.

And could you comment on whether or not any of the projects are correlated with, directly with, any customers that were successful winners of grant money that came out about a month ago?

Sure. So the interesting thing about the grants, especially the first couple grant awards, were actually for projects that were completed very early in 2009, which obviously didn't do a lot for stimulating activity on those projects but it did obviously generate a lot of cash for those companies to then invest in new projects. So some of the customers that we were awarded contracts with during the quarter did receive some of that grant money.

More importantly, though, and we kind of mentioned it on the call, we think that future grant money is going to have more of an impact on activity. And, obviously, we think that the loan guarantee -- and we talked about it a couple of times now -- we think that's really a very important piece of what the stimulus package did. We originally expected the language and the applications to be out in July. The came out on October 7th. The process has been defined. The first applications will formally go in in November. And we think some of those will get turned around relatively quickly. We're not seeing any activity related to that today but we do think that's going to really impact '010 activity as we start thinking about the middle or the late part of the year.

And lastly, could you give us some color on how your Spiritwood project is progressing and maybe a little bit more color on future opportunities on the industrial market?

So the Spiritwood project is performing very well. We're on or slightly ahead of schedule. And again, that's a very important project, not just because of that specific project, but what it does for us, and really our resume building of power plant construction.

And I think as we look into 2010 and beyond, we've been spending a lot of money hiring the right talent and increasing the talent level and adding people into that business. We believe that there's some solid opportunities for us with similar type projects than Spiritwood, and more importantly, really taking those skill levels and transforming them into biomass and solar and geothermal. And we're seeing a lot of activity around all of those today. So we're hopeful that as the next couple of quarters roll around, we'll have some positive news around some of that.

That's excellent. Thank you very much.

Thank you, Alex.

Your next question comes from Adam Thalhimer with BB&T Capital Markets.

Thanks. Good morning, guys.

Morning, Adam.

Jose, did I hear you say you booked 600 megawatts of wind -- new wind awards in the quarter?

That's correct.

What is that versus Q2?

Through the first half of the year, we probably booked less than half of that.

Okay.

A lot less than half of that.

Wow. Can you comment on activity in the last -- since the end of the quarter?

The 640 would include anything that has actually been awarded since the end of the quarter. I think that what we said is we're looking at a similar number in size and scale on projects that were either in the late stages of bidding or in the process of negotiating. So again, we're pretty excited that 2010 we expect to be a very active year.

Okay. And could you elaborate a little bit on the fiber deployments. I know that's been a little disappointing in 2009. What would you expect that to do in 2010?

It's a good question. And we don't have great visibility. I think that there's no question, obviously, that business has been down in 2009 and probably down more than we expected. We always knew maintenance would suffer. We thought fiber would hold a little bit better than it has. Again, I actually think that the normalized fiber deployment projects that the big carriers are doing are going to kind of stay at the levels they're at. So I don't expect much recovery in '010 based on those.

But the two things that could potentially drive that business are obviously the broadband stimulus initiative which is going to have considerable construction activities associated with it. Just yesterday or the day before, they actually announced an extension to the awards. They were supposed to announce the awards in November. They've asked for another month so we're hoping that those awards come out in early December. But we definitely expect them by the end of the year.

That in and of itself, depending on who wins and what kind of awards get executed, will have a very positive impact on the industry as a whole. And I think we'll get our share of that.

And then, obviously, fiber to cell sites is something that we saw some activity in '09. We think that activity is going to significantly ramp in '010, not just by the major carriers but everybody that's got fiber deployed in the ground is trying to sell to the carriers. So that's very positive in this environment and we think that will be a further driver of business in 2010.

Great. And then lastly, as you mentioned, you're building your electric transmission and natural gas businesses. Can you just elaborate on what you're doing on that front and what the outlook is there?

Sure. The natural gas side, we've made an acquisition in mid-2008, got off to a good start in 2009 with the backlog that we had. Obviously, natural gas prices were depressed and we struggled through the second and third quarter. We've seen a pickup in activity. We've seen a ramp in bids. We're pretty optimistic about what we're seeing now going into 2010. We think that business is actually turning.

And natural gas prices have come up a little. But two things -- I think the futures of natural gas, people still expect that to be relatively healthier than it is today. And based on today's prices, if we're seeing that kind of increased activity, we're hopeful that as prices continue to increase, we'll see more activity. So we're probably a little bit more bullish on that business today than we were on the last call.

And as it relates to our electric transmission business, we've worked hard over the course of the last couple of years to organically grow that business. I think we've done an excellent job. I think we have added some excellent talent in that business and really have positioned ourselves differently. I think our customers today view us differently than they would have a year or two ago. I think that's positive. I think it's giving us access to more bids and larger bids. And we're pretty excited about that.

Great. Thanks very much.

Thank you, Adam.

Your next question comes from Mark [Aydin] with KeyBanc Capital Markets.

Good morning, gentlemen. Congratulations on the quarter.

I just have a few questions on behalf of Tahira. First, could you talk about whether you've reduced your outlook for amortization expenses from acquisitions from the $9 million level in 2Q '09?

The amortization, a good estimate is about $10 million for this year.

Okay. Do you expect it to be ramping up in 4Q '09? Because just looking at our model, it seems that is was running a little lower than had been expected.

So, Mark, I think that with our rounding the right number's probably closer to $9 million. We're at about $6.5 million for the year so far. You can expect another $2.5 million or so in the fourth quarter. I think those numbers are relatively close, not exact, but close.

Okay. And my next question, just if you could provide any color on any inroads that you're making on the wireless side with Verizon with the help of the Nsoro acquisition?

Sure. So obviously, we had an excellent quarter in our wireless business. Revenues were up well above 30%. Predominantly today, we're working for AT&T. And as many of you might know, AT&T has a significant ramp on their second half of the year CapEx plan. They've announced their third-quarter CapEx which was a big ramp over Q2, I think similar to the numbers that we saw. There's a further ramp for Q2. And we're now -- we now believe that our Q4 business will be 20% or more up, which is roughly the same estimates as AT&T's giving to get to the bottom end of their CapEx guidance. If they end up hitting their higher end that could potentially be more positive for us. But we're assuming they're going to hit their lower end of guidance.

So we're working hard on Verizon, but to be 100% honest, we're obviously working very hard to meet the demands of AT&T, and that's consuming a lot of our time and energy in that business. We've made some inroads with other customers in that business. We've started some new projects, still not meaningful as it relates to the size of what we're doing for AT&T. But again, we feel comfortable that going into 2010, we'll begin to see some customer diversification in that business.

Okay. And just one more question on Verizon. Just have you set any type of milestones for penetration with them going into 2010 just given that they're -- Verizon is expecting to be pretty much materially done with the FiOS buildup by the end of 2010?

Obviously, we're focused on wireless as the area of growth, not just for Verizon and AT&T, but for the telco in general. So I think if you look back at what we've accomplished over the course of the last 18 months by getting into wireless, we identified that the wireline spend over time was going to be affected. And as we look at our customers' businesses, obviously, they're more focused on wireless than they are on wireline.

With that said, wireline's never going to go away. And we think that from a maintenance perspective, the current activity levels that we're seeing are probably underfunded and will require more investment in the future. So we are bullish that that business over time will pick up. We continue to be active in trying to pick up more territory and expand our geographic region in that business. So we're still actively out there trying to grow our wireline business.

As it relates to the fiber portion of those businesses, we are seeing some other customers step up and be a little bit more aggressive. I think Qwest has made some favorable comments over the course of the last couple of months as to their plans. I think with some of the mergers and acquisitions in those markets, you'll see some of the smaller players deploy more fiber.

So I think fiber in general will stay relatively flat even as Verizon continues to dwindle a little bit. But as it specifically relates to Verizon, we're obviously focused on growing our business, both from a maintenance perspective and more importantly, from the wireless side. They currently contract the wireless business differently than AT&T does. It's a much more local competitive process. We're now engaged, we're making small steps. And again, we think we're an excellent solution for them. And over time we think we'll get our share of penetration.

Okay. And just a last question. Could you talk about the pricing in the wind business today versus the start of the year?

We got a similar question last quarter and I'll give you a similar answer because it really hasn't changed. I think we've been extremely disciplined in how we've looked at our projects from a labor perspective. So I don't think you're going to see much difference from how we've bid these projects over the course of the last year. Obviously, there are cost savings to be found. Commodity prices are down, and we're able to pass some of those along to our customers. So from a pure megawatt perspective, pricing is down. But from our labor and margin perspective, we're doing the best we can to keep that level. And I think we've done a good job at that.

Okay. Thank you very much.

Thank you, Mark.

Your next question comes from Mickey Schleien with Landenburg Thalmann & Company, Incorporated.

Good morning. My question is the following. AT&T appears to be focusing more and more on its Uverse product, which, as you know, competes directly with cable and satellite TV. In the past, you've noted that a significant part of your DirecTV business is growth resulted from the alliance with AT&T. So what are your expectations over the medium to long term for your DirecTV business given AT&T's competitive product? And how is that balanced, if at all, by any work that you may be conducting for AT&T on Uverse itself?

So from AT&T, we're actually obviously a wireline provider to them. We've been for a long time. We'll continue to be so. So we are deploying Uverse product today in some of our geographies.

As it relates to DirecTV, they signed their deal with AT&T in February. When they signed their deal, they had Uverse or they actually started selling in February. And they've had Uverse and they've been selling all along even though they've been able to offer Uverse product. So DirecTV is a secondary offer from AT&T to Uverse. So if it's a Uverse-available household, they sell Uverse first and then they follow it up with DirecTV if Uverse isn't taken. That hasn't changed.

I think that the DirecTV and AT&T relationship has gone extremely well for both companies. I believe it continues to go well. So even though there's a competitive product out there, I don't think that we're going to see a big impact to the DirecTV business. If you think about the last couple of years, as FiOS has been out in the DirecTV markets, many in which we serve, Verizon also sells DirecTV and FiOS could -- you could argue is a little more penetrated than Uverse. And we really haven't seen an impact on DirecTV's business in the Verizon markets. So we're not very concerned. We think DirecTV's product is at the top end of the industry. And I think that those who should be more concerned are obviously the companies that provide weaker video products.

Thank you.

Your next question comes from the line of John Rogers with D.A. Davidson.

Hi. Good morning.

Good morning, John.

Jose, I appreciate very much the rundown by segment. And I was just wondering, could you could give us a rough idea either by backlog or revenue how it breaks down now?

Yes, I can give you some rough numbers.

Yes.

If you think about the business, DirecTV is roughly 30% of our business in the quarter. And obviously, as we ramp, that number will come down a little bit. Wireless was about 15% of our business. Wireline was roughly 19%, 20% of our business. Wind was 19%, 20% of our business. Natural gas was about 4% of our business. [T&D] was about 10% of our business. And our government or water and sewer division was a couple points.

Okay. In the industrial renewables, biomass market, where do you -- including that?

We're including that -- it's probably in our -- it's in our utility numbers. So you probably take a point or two--

Okay.

--of the overall company and we'd have to move that around a little bit. But it's roughly a point or two.

Okay. Okay. And then, looking at the wind business for a second -- I know you've answered a lot of question about this -- but my understanding -- maybe this is wrong -- that a lot of the activity there tends to be back-end weighted seasonally in terms of construction. Now, I'm just saying about 2010. Is that the sort of pattern that we should be thinking about more into the third and fourth quarters? Or I mean, given the growth in backlog, is it going to ramp up more quickly than what--

Well, I think that as we compare 2010 to 2009, the first half of '010 will be stronger than the first half of '09 because we obviously have a lot more backlog. There's no question that Q3 and Q4 should be and probably will be more active just based on the nature of the business and what's historically happened.

So we expect Q1 and Q2 to be better than they were

Year over year.

-- year over year, based on the backlog that we're working through. The great majority of the numbers that we quoted today, we expect to be finished with the majority of that business through the first half of the year, although some will probably spill into Q3. But obviously, as we continue to add projects, there'll be more back-ended projects in Q3 and Q4.

So you are right. Q3 and Q4 should be the best quarters in that business. Q2 should be a very good quarter in that business. And Q1, it's actually very weather-related, right, depending on how weather treats us will depend on how much productivity we can get completed in a particular area because many of these projects are in the northern Midwest.

Okay. Right. And then, just lastly, the impact of gas, well, I guess lower gas prices in the third quarter and potentially higher gas prices in the fourth quarter and going forward -- rough impact?

Fuel prices?

Yes. Yes. Sorry.

So fuel prices were actually up sequentially. Our average gallon of fuel was up about 15% from second to third quarter. Fuel was up slightly sequentially and it was up [previously] -- it was down obviously significantly year over year based on where the prices were. I don't actually have a percentage to give you, John, but we can get back to you on that.

Okay. But as I recall, it's pretty minimal. I mean, single digits sort of impact.

Yes, sequentially, it was up year over year. It was down -- obviously last year fuel prices were pretty inflated for Q3. So it definitely had an impact, but I don't have that number handy.

Okay. All right. Thanks a lot.

Thanks, John.

Your next question comes from Simon Leopold with Morgan Keegan.

Great. Thank you. Just a couple of hopefully easy ones. One is, could you break out what your organic growth was year over year given the significant number of acquisitions you've made?

Yes, good morning, Simon.

I think that if you look at -- if you look at the Q that we filed, obviously, in the description of revenues, we've kind of been breaking out the revenues associated with acquisitions in that period year over year. So if you back that out, organic growth was somewhere in the range of negative 15% or so driven by predominantly our wireline and utility distribution business. If you think year over year, we were also positively impacted in 2008 by about $10 million in storm revenue. We didn't have any in 2009. So that had a little bit of an impact. We're not a big -- we don't generate big amounts of revenues with storm but we do see some incremental impact. We didn't see it this year. So I think that that's the rough number.

Okay. And then, when we look at the Q4 guidance, I'm just wondering if you could give us a few more thoughts on what kind of mix you expect? I know you mentioned the favorable trends in wireless construction so I'm assuming your communications are up sequentially. Could you go into a little bit more detail on the mix?

Yes, I think if you think about the increase, it's going to come from the incremental lift in wireless and the balance will all come from our utility section.

Okay. And just a last one. On the broadband stimulus opportunities around those -- the construction. Understanding most of your telco exposure is AT&T and Verizon, neither of which are applying for broadband stimulus money, could you talk about what kind of relationships or channel you have with the kinds of service providers that would be going after that money?

Yes, I think if you -- obviously from a wireless perspective, the bulk of our work is obviously with the big carriers. If you think about our wireline business, at 20% of revenues and you back out from a wireless perspective what we're doing for AT&T, that's actually not the case. We're working for a number of different, smaller telco rural -- rural telcos across the country. They've always been a significant piece of our work in that business. They continue to be.

So we have dozens of customers that have applied for federal stimulus dollars, some smaller, some very, very large projects. And if you look at a lot of the applications are actually by new-co's as well, companies that have been formed to specifically try to serve an underserved area. So we are very focused on all of the grant applicants. We actually have a tracking sheet that we follow with all of the applicants. And we've been reaching out to everybody that applied.

So again, we feel -- we feel relatively good that when those awards start getting announced that we're going to be a player and we're going to get our share.

Great. Thank you very much.

Thank you, Simon.

Your next question comes from Liam Burke with Janney Montgomery Scott.

Good morning. This is J.T. Rogers sitting in for Liam Burke.

Good morning.

Just had a quick question. You mentioned that the wind farm and biomass business are more capital intensive than your historic core businesses. But -- they're pretty small, but it sounds like they're going to have a significant impact next year. Just wondering how much more capital intensive are those businesses? And how does that affect the return profile for those projects?

Yes. Bob mentioned the natural gas and the wind, not necessarily the biomass. The biomass wouldn't be very capital intensive. But from a wind side, if you look at the dollars spent this year, a significant amount of the CapEx that we did do in 2009 was related to beefing up our transmission and our wind business. We bought a number of cranes this year in a tough environment where we thought we got some real favorable pricing to prepare us for the future.

So I think that incremental capital expenses, while we'll have some, I actually think they'll be somewhat moderate. So again, going into this year, we thought we'd be in the low '40s. We put a conservative number out there because we were new to some of these businesses. We'll end up -- I think we'll end up somewhere in the low '20s, if that. And I think that -- I would be surprised if we did more than the low '40s in 2010.

Okay. Thanks a lot.

As there are no other questions in queue, I'll turn it back over to Mr. Mas for closing comments.

Sure. Again, thank you for participating. We want to thank all of you that have supported us during the year. And we look forward to our fourth-quarter call. Thank you.

This concludes today's presentation. Thank you for your participation.