MasTec Inc (MTZ) 2009 Q4 法說會逐字稿

Welcome to MasTec's Fourth Quarter 2009 Earnings Conference Call initially broadcast on February 25, 2010. Let me remind participants that today's call is being recorded. At this time I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Mark?

Thank you. Good morning, everyone. Welcome to MasTec's 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 in the industries where we operate.

These forward-looking statements are the Company's expectations on the day of the initial broadcast of this conference call, and the Company will make no effort to update these expectations based on subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in our press releases and filings with the Securities and 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 significantly from results expressed or implied in these communications.

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 press release from yesterday or in the investor presentation PDF files located on the presentation and webcasts page in the investor relation section of our website located at MasTec.com.

With us today we have Jose Mas, our Chief Executive Office, 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 a Q& A period, and we expect the call to last approximately 45 minutes to an hour. Jose?

Thank you, Marc. Good morning, and welcome to MasTec's end-of-year conference call. Today I will be reviewing both our 2009 fourth quarter and yearend financial results and will share my outlook for the different markets we serve.

First, some fourth quarter highlights. Revenue was $496 million, a 20% increase over the prior year's quarter. Gross margins improved 70 basis points to 15%. EBITDA increased more than 50% to $50.3 million for the quarter versus $32.5 million last year. Cash flow from operating activities was $38 million, more than double that of the previous fourth quarter.

For the year, revenue was $1.623 million, up 18%. Gross margins also improved over 70 basis points to 15.2%. EBITDA for the year increased 39% to $153 million from $111 million a year ago, and cash flow from operating activities was $124 million. That's $66 million more than the previous year. All in all, a very good year considering the difficult economic environment in 2009.

Before I discuss the individual industry's recover, I would like to reflect on some of our accomplishments over the past three years. Since 2007, we've increased revenues 56%, improved margins, and roughly doubled EBITDA and cash flow from operations despite a depressed economic environment. By the end of 2010 we expect our revenues to have doubled and our EBITDA to have tripled our 2007 results.

We've also repositioned MasTec for further growth and even greater financial success. Our entry and expansion into the transmission, renewable energy, wireless, and pipeline construction industries has diversified our customer base and revenue stream and has positioned MasTec as a key participant in some of the fastest growing segments within our economy. And finally, during a period of economic difficulties for many, we've created jobs and have grown our family to more than 9,800 members as of yearend.

While our nation's economic recovery will take time and may be bumpy, we are certain that MasTec is in a better strategic position today than at any other time in our Company's history. And we are confident that the industries we serve will help lead our country's economic recovery.

Now I'd like to discuss the industries we serve. First, I would like to comment on our communications business, which accounted for 52% of the Company's revenue for the fourth quarter of 2009. Within communications, our installable home business had a good quarter and a good year. Quarterly revenue from our biggest customer, Direct TV, was $120 million, and for the year we posted record revenues. Despite a very difficult environment for television programming providers, we were able to grow this account by about 3% in 2009. In 2010, we expect revenues to be relatively flat to slightly down on a year-over-year basis.

The remainder of our communications business is experiencing a shift in revenue mix. During the fourth quarter, wireless revenue exceeded wire line revenue for the first time in our history. During 2009, we saw significant decline in our wire line customer's activity with business down almost 30% with some of our largest customers. Fortunately during the second half of the year, spending by some of these customers had stabilized.

While we expect wire line activity to be flat or down in 2010, we are encouraged by the potential of the proposed broadband stimulus spending. While only a small amount of the stimulus has been awarded to date, we are seeing increased activity from many of our customers including our rural customers.

On the wireless front it's a different story. Our wireless revenue was almost $200 million in 2009, a 138% increase from last year. Wireless data consumption is growing at an extraordinary pace, and our customers continue to invest heavily in their networks. With the development of data-intensive devices still at its infancy, we believe we are at the beginning of a CapEx cycle that will evolve through multiple technologies.

We've seen the conversion from 2G to 3G and will see the evolution in conversion to 4G and other technologies. AT&T, our largest customer in this business, recently announced greater CapEx spending related to wireless, and we expect to receive our share of that.

One important note to add. Almost two-thirds of our wireless revenue this year came in the third and fourth quarters, and we expect this trend to continue with the bulk of wireless revenues coming in the second half of the year.

Now I'd like to cover our utilities business, which accounted for 46% of revenues in the fourth quarter. Within utilities, our distribution business had a difficult 2009 with revenues off significantly year-over-year. Although we began to see some stability in this market in late 2009, we are forecasting revenue to be down slightly in 2010. And while still small, our transmission business has seen good activity since last year, and we expect 2010 to be a good year.

Our pipeline construction revenues increased by more than $90 million in the fourth quarter of 2009 versus 2008, primarily as a result of our acquisition of Precision Pipeline. Precision ended the year with approximately 400 million in backlog as anticipated, and we are forecasting $300 million in revenue for 2010. Bid activity has been robust so there is a strong possibility 2010 will be even better than expected at Precision.

Moving to our renewables business, we expect an excellent year. While 2009 was a difficult year for most developers who struggled with both procuring financing and executing power purchase agreements, activity has improved. As we previously announced, we were awarded 600 megawatts worth of renewable projects late last year. Since then we've been awarded an additional 300 megawatts worth of projects, bringing our 2010 contracted megawatt count to 922 megawatts.

Competition remains strong, and while we've lost some bids we had hoped to get, we remain excited about the more than 600 megawatts of unawarded bids we still have pending. And more importantly, we expect activity to pick up as the year progresses. Our customers are much more bullish this year than last, and we are expecting a very active second half of 2010. Our current guidance assumes about 1,300 to 1,400 megawatts of construction for 2010. While backlog is strong, it does not include our most recent renewable wins.

Yesterday we issued both first quarter and full-year guidance for 2010. I'd like to cover first quarter guidance in further detail. First, we expect revenues to be strong at $420 million. However, extremely severe weather conditions have affected both productivity and margins.

Second, we are a seasonal business. Many of our larger northern-based projects will not get very active until later April and May, and while we have excellent visibility into our annual wireless revenues, this business ramps over the first half of the year with most of the early activity consisting of planning, engineering, and permitting with heavy construction activity ramping in the second quarter.

It's also important to note that our pipeline construction revenues will spike with large projects. For example, we will be completing a large project at the end of the first quarter and starting a very large project at the end of the second, making the second quarter our low revenue quarter for our pipeline construction business in 2010. Overall, given our seasonality, we expect the third quarter to have the highest revenue in margins followed by the fourth quarter, then the second quarter, and finally the first quarter.

In summary, we are very pleased with both our 2009 results and our outlook for 2010. I will now turn the call over to our CFO, Bob Campbell. Bob?

Thank you, Jose, and good morning. As Jose said, we had a very good fourth quarter and 2009. I'm going to cover three areas today, our financial results, our capital structure and liquidity, and our earnings guidance for 2010 and for the first quarter. I'll mention a few highlights first and then I'll grill down into the details.

For the fourth quarter, my highlights are Q4 revenue of almost $500 million, was up 20% from last year. That's our best revenue quarter ever. Fourth quarter EBITDA of $50 million was up 55% over last year's $33 million. That's our highest quarterly EBITDA ever. We hit 10% EBITDA margin in Q4. That's our best margin in almost a decade and far better than our 7.9% last year.

Q4 cash flow from operations was strong at $38 million. It was driven by really good cash earnings and our best DSOs of the year, 60 days. Fully diluted EPS was $0.22 compared to $0.26 last year. However, you should know that there are two significant mostly non-cash items negatively impacting fourth quarter comparisons. First, the blended book tax rate for Q4 this year was 29%, and last year's tax rate was only 2%. Our book tax accrual was predominantly a non-cash charge because of our NOLs. But the mostly non-cash book tax accrual was $7 million higher this year, negatively impacting EPS by $0.08 per share.

Second, Q4 amortization expense for acquisition-related intangibles was $6.6 million this year compared to $1.6 million last year. That's a $5 million increase with a negative $0.03 per share EPS impact. And finally, we settled our auction rate securities arbitration claim, and we also took a mostly offsetting charge for permanent impairment on our corporate bond-backed auction rate securities.

My 2009 full-year highlights are 2009 revenue was $1.6 billion, up 18% from last year. That's record revenue for MasTec. EBITDA for the full year was $153 million, up 39% or $43 million versus last year. That's our second highest EBITDA ever. EBITDA margin for the year improved 140 basis points, up to 9.4%, which is up from 8% last year. 2009 cash flow from operations was $124 million. That's more than double last year, which was $58 million.

The increase in cash flow as due to the big increase in EBITDA, minimal cash taxes, and improvement in our accounts receivable, DSOs. Liquidity measured by unrestricted cash and availability from our senior credit facility was $160 million compared to $111 million last year. Fully diluted EPS was $0.90 compared to $0.96 last year. I have the same two comments about mostly non-cash tax expense and amortization of acquisition and tangibles that I had about Q4.

First, the 2009 full-year blended tax rate was 11% compared to 1% last year. Our book tax accrual for 2009 was $8.4 million compared to only $900,000 last year. The majority of the tax accrual was non-current or not payable in cash due to our NOLs. In making year-over-year EPS comparisons, note that there is a $7.5 million book tax expense increase or $0.09 a share negative impacted GAAP EPS due to the mostly non-cash tax expense increase.

Second 2009 amortization of acquisition and tangibles was $13 million compared to under $4 million last year. That's a $9 million increase or a $0.07 per share drag on GAAP EPS. And finally our capital structure and our key financial ratios are all in terrific shape today.

Now for the details. Q4 revenue of $496 million was up 20% year-over-year. Increases in our wireless business and the impact of the Precision Pipeline acquisition drove the growth, which was partly offset by the weakness in some of our other markets that Jose mentioned, especially in renewables. However, as Jose mentioned, we are now starting to see positive movement there.

Q4 gross profit margin improved to 15%, up from 14.3% last year. The improvement reflects continued productivity gains and some benefit from business mix. Depreciation and amortization for the fourth quarter was $17 million, up substantially from $9 million last year. The increase comes primarily from the growth and amortization of acquisition-related intangible assets plus growth and fixed assets. Amortization of acquisition intangibles was $6.6 million compared to $1.6 million with the bulk of the increase coming from the Wanzek and Precision acquisitions.

For Q4 G&A expense was $25.3 million, down slightly from last year in dollar terms, which showing a nice decrease, down to 5.1% of revenue from 6.4% of revenue in 2008. Q4 G&A this year included a $2 million litigation gain, which was offset by substantial bonus accruals.

Net interest expense for Q4 was $7.4 million compared to $4.6 million last year due to higher debt levels and lower interest income. I'll talk about our capital structure a little later. Q4 tax expense was $7.4 million compared to only $300,000 last year. The blended tax rate was 29% this year compared to only 2% last year. But as I mentioned, the majority of the book tax accrual is non-current or not payable in cash due to our NOLs. I'll cover more about our NOLs in the outlook for paying cash taxes a little later.

As I mentioned earlier, Q4 EBITDA was up $18 million or up 55% while GAAP EPS was actually down $0.04 for the quarter. The drop in GAAP EPS was due to the higher book tax rate, higher depreciation and amortization, higher interest, and a higher share count due to the two convertible notes issued in 2009.

The biggest negative impact was the increase in mostly non-cash tax accrual which hurt EPS by $0.08 in Q4 and the increase in amortization of acquisition and tangibles, which hurt EPS by $0.03. So the change in mostly non-cash book tax rate and the increase in amortization hurt the quarter by $0.11 compared to last year. GAAP EPS was nevertheless $0.22 for Q4 compared to $0.26 last year.

For the fourth quarter of 2009, the ten largest customers were: Direct TV was about 24% of total revenue. Enbridge was about 20% of revenue. That's a pipeline customer. AT&T was about 17% of total revenue with growth coming from the wireless part of the business. Verizon and Edison Mission Energy were each about 3% of revenue. Iberdrola, Duke Energy, and Great River Energy were about 2%. Great River Energy is the customer for the 100 megawatt combined Eaton power plant that our industrial construction group is building. And Progress Energy and EXCO Holly, a pipeline customer, were about 1% of revenue.

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

Regarding concentration with Direct TV, the concentration peaked at 47% of total revenue during 2008 but was down to 24% in Q4. The Direct TV percent of revenue will over time continue to shrink as other parts of the Company grow faster. We believe that we have successfully addressed our concentration issue despite continued growth in Direct TV revenue.

Today backlog is about $2.1 million. That's an 18-month backlog number. Q4 a year ago was about $1.7 billion and it was about $1.8 billion last quarter. Remember that well over 50% of our revenue comes from master service agreements or other contracts for continuing services. And our backlog includes an estimate of the next 18 months of revenue from those contracts.

With over half of MasTec's revenue coming from what we call master service agreements or other contracts for recurring services, MasTec is unlike many other construction companies. We have a large base of contractual non-project generally recurring revenue, and therefore we do not have to go out and replace all of our projects each year to keep our revenue up.

These master service agreements are generally for three to five years and are generally exclusive for a stated geographical area. None of them have revenue guarantees, but the revenue is reasonably predictable. Having said all of that, maintenance work for both electric utilities and telecom wireless customers is still very soft. And some of our customers are trying to spend minimal dollars on maintenance.

Now let me talk about our cash flow and our balance sheet. Our cash flow continues to benefit from our large tax NOLs. First let me cover how the NOLs impact our cash taxes and then I'll cover our book tax accrual rates, which are dramatically higher than our actual cash taxes.

Currently we have a federal tax net operating loss or NOL of about $121 million, which we can carry forward against our future cash tax liabilities. Because of our NOLs, we paid only modest cash taxes for 2009, and we expect to pay modest cash taxes again in 2010. Based on our current projections, we will now likely exhaust our NOLs in the latter part of 2010. So we expect to pay some cash taxes on earnings for 2010 but far less than would normally be paid. And then by 2011 we expect to be a normal full cash taxpayer. Our tax position really helps our cash flows for 2009 and also for 2010.

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, in Q4 we ran out of the unrecognized tax benefits for book purposes, and therefore our financial statements blended tax rate for Q4 was 29%.

Going forward into 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 be mostly non-cash through 2010. I hope I've been clear about cash taxes and about financial statement tax rates. If you are unclear on this rather complex topic, give me a call later and I'll walk you through it offline.

At quarter-end our accounts receivable day sales outstanding or DSOs were 60 days compared to 62 at the end of last year. We have said all year that our goal was to hit or beat 60 days, so we are pleased to have reached our goal, especially in this economy. We will strive for further improvement, but I'm not sure how much lower we can go. Our DSOs are already better than our peers.

Every day of DSO improvement is worth over $9 million in cash. It may be old school to brag about DSOs, but our operations management team really does focus on cash flow, and they deserve credit for quickly converting our work into cash. As long as I'm bragging about our team, it's worth noting that we have reduced our DSO steadily over the last five years, going from a far too high 86 days down to our current 60 days.

Regarding capital spending, we only spent $22 million in 2009, significantly lower than expected due to soft markets and also conservatism in our original estimate. 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. As a data point, we spent $35 million on CapEx in 2008. We are now much larger in size and our renewables energy business, our pipeline business, and our industrial construction business are more capital intensive than the historical core MasTec businesses. We believe that 2010 CapEx will be between $40 million and $49 million.

To summarize our cash flow characteristics, I would say this. EBITDA is growing nicely. DSOs are below our peers. CapEx is in the 40s is modest. And our tax payments should be modest for 2010. Therefore, our cash flow should continue to be very good.

At yearend we had $89 million in cash compared to $47 million at the end of 2008. At the end of the quarter we had good liquidity with unrestricted cash and availability under the Company's senior credit facility totaling $160 million compared to $111 million a year ago.

Let me talk about our capital structure. As a quick capital structure summary, at yearend we had $528 million in equity, $438 million of total debt, only $350 million in net debt, that's net of cash, and we had $153 million of 2009 EBITDA. With these numbers, 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 very attractive interest rates. To give you a little more detail, our bank line which has no draws matures in 2013. The $215 million in convertible notes mature in 2014. And our $150 million in senior notes matures in 2017. And as I mentioned, our debt is very attractively priced. We currently pay LIBOR plus 250 on our bank revolver, 4% and 4.25% on our two convertible notes, and 7-5/8% on our senior notes.

When I step back and look at the 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 Direct TV concentration, improve cash earnings, margins, and operating cash flows, all while maintaining a very solid capital structure with excellent liquidity.

Now let me cover our 2010 guidance. Our 2010 guidance is revenue of $2.1 million, EBITDA of $218 million to $223 million, and GAAP fully diluted EPS of $0.92 to $0.95.

Now let me add a little color to full year guidance. That's revenue growth of 29%. That's EBITDA growth of about $65 million to $70 million or 42% to 46%. GAAP 2010 fully diluted EPS of $0.92 to $0.95 compares to $0.90 for 2009. 2010 GAAP EPS is negatively impacted by a very large increase in the book tax rate. The 2010 book tax rate should be about 40.6% compared to only 10.6% for 2009. The book tax rate increase is a $0.43 to $0.45 per share negative drag on 2010 earnings. And as I've already noted, our cash taxes for 2010 will be modest, so the tax accrual is mostly a non-cash charge.

I'd also like to make a couple of comments about the profit margins implicit in our 2010 guidance and also about our profit margin trends. Our EBITDA margins have grown from 7% in 2007 to 8% in 2008 to 9.4% in 2009. We are really proud of the 2009 margin expansion in the face of such a weak economy. The EBITDA margin implicit in our earnings guidance is 10.4% to 10.6%, reflecting further margin expansion.

Our short-term EBITDA margin goal is to hit or exceed 10% on a full-year basis. We hit 10% in the fourth quarter, and now we expect to exceed that on a full-year basis.

Our Q1 guidance is revenue of $420 million, Q1 EBITDA of $30 million to $32 million, and Q1 GAAP fully diluted EPS of $0.07 to $0.08. Now let me give you a little color to Q1 guidance. That's Q1 revenue growth of $78 million or 23%. That's EBITDA growth of $2 million to $4 million. Our GAAP EPS guidance of $0.07 to $0.08 is clearly lower than last year's $0.16.

There are four reasons for the drop in GAAP EPS. The first and by the far the biggest driver for the EPS decrease is a dramatically higher book tax rate that's mostly non-cash. Second, there is higher amortization. Third, we are more seasonal now due to the greater exposure to winter weather. And fourth, we have somewhat higher fixed costs in share counts making year-over-year EPS comparisons more difficult in our most seasonally challenged quarter.

The book tax rate for Q1 2010 will be around 40.6% compared to only 1% a year ago. That's a $0.06 per share drag on earnings for a mostly non-cash charge. Amortization of acquisition and tangibles should be over $3 million this year versus $2 million last year. We now have major parts of the Company based in North Dakota and Wisconsin, and while they do work somewhat nationally, their strength is clearly in the Midwest and Northeast where we have Q1 weather issues. And this year, we've been having absolutely the worst winter we've had in years, including in the Mid Atlantic and Southeastern states where we normally don't have much in the way of weather issues.

We're experiencing lower productivity and increased costs due to the weather. And finally, we have higher depreciation, amortization, interest, and share count. While the result of our transformation on a full-year basis is a dramatic increase in full-year earnings potential, it also saddles us with new earnings challenges in our seasonally lower quarters, Q1 followed by Q2.

We believe that our seasonality pattern has changed permanently with a smaller proportion of our earnings in the future coming from the winter quarter and Q2. Q1 has never been a good bell weather for our full-year results, and now it's even less indicative of full-year performance.

I've spent a fair amount of time on Q1, but we're trying to communicate how our transformation affects our forecasts and your models. So to summarize, we had a very good Q4 in 2009 given economic and market conditions. We're optimistic about 2010, and we expect to grow the Company, increase cash earnings, expand margins, and grow cash flows.

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

Thank you, sir. (Operator Instructions). We'll take our first question from Alex Rygiel of FBR Capital Markets.

Thank you for taking my call. Good morning, Jose.

Good morning, Alex.

You mentioned that embedded in your guidance was the expectation of 1,300 to 1,400 megawatts of wind construction activity in 2010. That sounds a little bit higher than two or three months ago when I thought your expectation was something around 1,000 megawatts. Does that suggest that you feel incrementally obviously more confident with regards to what you have in hand today and what you're bidding on, and can you expand upon that a little bit?

Sure, Alex. I think --you know, we've really never been in a position to have the kind of backlog in that business that we have today. We're sitting at about 922 megawatts for construction activity in 2010. If you recall the best year that Wanzek had was in 2008 when they did about 1,000. So we're roughly where we think Wanzek was in 2008 in current backlog.

And again, you know, earlier we said we've got about 600 megawatts of projects that are outstanding bids that we think will be awarded in the next couple of months. We actually lost a couple bids we expected to win or we were hopeful that we could win, so that number would have been even better. But you know right now we're seeing a lot of activity, got a lot of bids out there, and more importantly I think our customers are very bullish. They're talking about a very active second half of the year. We think a lot of projects are going to start second half of 2010 and go into 2011.

So I think the answer is yes, we are more bullish today than we probably were three or four months ago in this business. I think our backlog shows it improves it. And I think we're trying to put out the most reasonable estimate that we can, and we think 1,300 to 1,400 megawatts at this point is very achievable.

And as it relates to the natural gas pipeline business, I understand there's a number of fairly large pipeline opportunities that are out there in the market being bid on right now by a number of players. Could you comment on whether or not you're seeing that as well? And also comment on what you think your theoretical capacity is in the pipeline business today?

You know, sure. I think there's no question that quite frankly we've been surprised by the level of activity in the business. I think when you listen to a lot of the reasoning why we did Precision and why we really liked that company in particular was because they were coming into 2010 with a lot of backlog, so their backlog currently stands at $400 million which I think is a pretty privileged position to be in in this market.

With that said, I think there's no question we've been surprised by the amount of activity. There are a lot of bids out there. There is a lot of work bidding, both for 2010 and beyond. So we're hopeful that as the bidding season continues and concludes we're going to do better. From a capacity perspective, Precision's best years were in that range of $500 million of revenue, so there's no question that we could potentially do more than the 300 that we're forecasting.

Again, it's a new business for us. It's one that we closed on a couple months ago so we're trying to be somewhat conservative. But yes, activity is strong. A lot of work is out there, and we're hopeful and confident that that's going to continue, not just through 2010 but beyond.

And as it relates to M&A activity over the course of the next 12 months, should we anticipate any kind of significant transactions like the handful that you've made over the last three years, or is 2010 going to be more of an operating year where you execute on the backlog you have and knock the cover off the ball?

So a couple of comments. I think that we've never taken our eye off of execution. And I think that's evident in the financial results that we've been delivering. So even though we've been active on the acquisition front, we've never taken our eye off of margins. And that's been very, very important for us.

So no question that 2010 is another year of execution. I think, you know, we've said over the course of the last six months or so that we didn't have to do a deal. We really liked what we saw in Precision. Precision was what we felt more of an opportunistic deal in that it was in a space that we wanted to get bigger, and we felt it was good transaction.

So I think we could go all of 2010 without doing a deal and we'd be perfectly happy. I don't think it's today a goal or really in our sights to try to get a transaction done in 2010, but with that said we're very opportunistic. We're never going to take ourselves out of the market. There's a lot of activity out there, so we're looking. But again, for us to do something in 2010 it's going to have to make a lot of sense and be very opportunistic.

That's helpful. Nice quarter, and keep up the good work.

Thank you, Alex.

Next up we'll hear from Vance Edelson, Morgan Stanley.

Hi. Thanks a lot for taking the questions, and good job on the quarter. In terms of stimulus timing, you mentioned that rural broadband trends were encouraging. How about any other areas where you might specifically benefit from stimulus dollars starting to flow, whether it's smart grids, renewable energy, et cetera? Any feel for the time line there?

Well sure. Good to have you with us, Vance. We think we're seeing some of it currently in the renewables area. Obviously there has been a lot of talk on both the grants that have been awarded over the course of the last six or seven months. Some of those customers are actually putting out a lot more work in 2010 than we probably originally anticipated.

There's a lot on the loan guarantee side currently happening on renewables both in wind and solar. So I think that yes, I think the stimulus in its different pieces, grants, loan guarantees, are going to have a significant impact on the business in 2010.

You know, we didn't talk a lot about the solar market, but it is an extremely active market currently. There are a lot of projects being discussed. There's a lot of RFPs out on the street. We don't have a lot of detail around it in terms of knowing exactly when projects are going to go. But that could be potentially a very big growth area for us, and I think that will be predominantly driven by what's happened with stimulus in the renewable side of the business.

I think the wind developers as the loan guarantee program fully establishes itself towards the back end of 2010, I think that will also impact the wind side of the business in a big way at the end of 2010. One of the grants expires in November, so there is a -- we think it'll get extended, but currently if projects start by that time, there's a big incentive. So we think there's going to be a big push at yearend to get a bunch of projects started.

So yes, I think that -- there's a lot going on stimulus related on the renewable side more so than what we saw in 2009. I just think that on the broadband stimulus side we've seen some awards. Some of those companies will start performing work in 2010. I think there's more to come, so I think that's probably a little bit more tangible in being able to identify the exact project tied to the dollars related to stimulus versus wind where there's a lot of grants and loan guarantees you might not see immediately when you're looking at a project.

Okay. That's great color. Thanks for that. And as a follow-up, regarding Direct TV. Could you provide some color on the upgrade cycles right now, whether it's high def or new set boxes in general? Is there a lot of work to be done there as we move into 2010?

You know, that business has changed for us over the years a little bit in that today about 67% of the work that we do is related to existing customers. So it might be service calls, it might be upgrades, with the balance being new installations.

Quite frankly we're amazed at the performance that Direct TV had in 2009. I thought they did a fabulous job. If you think about the reason why somebody really changes their television provider, it's usually because you're moving. You're going from one house to another and you're having to make a decision, and you re-look at what you have from a television perspective versus just being upset with your current provider.

So the fact that Direct TV had the kind of growth it had in 2009, when in reality most people didn't move, I thought was a great sign. So I think one of the areas that's going to really benefit Direct TV's business is as the real estate market picks up and as people begin to move again and people change houses, I think that's going to add some momentum to that business. So we thought performance in 2009 was fantastic compared to their peers, compared to what's happening in that business.

So we're cautiously optimistic about 2010. We're projecting revenues to be flat to slightly down just because that's the current visibility that we have. But I think any pickup in the real estate market would change that.

Okay. That sounds good. I'll leave it there. Thanks, Jose.

Thank you, Vance.

Our next question today will come from Tahira Afzal, KeyBanc.

Good morning, gentlemen, and congratulations on a good quarter.

Thank you, Tahira. And good morning.

Just had a couple of questions, and I'll start off with Precision. Given -- you know you've indicated that Precision for 2010 is going to perform in line to perhaps a little bit better. And if I pull Precision now, it seems organically indicating margins to be flattish which is obviously great in this environment. Perhaps some conservatism there on your part if we look at how Wanzek is going to ramp up in 2010, and given that that business probably has more operating leverage? So I would like to get some comments on that.

You know, as we look back at the last couple of years and really look at guidance and what we're doing from a forecasting method, you know I think that in today's world it's very important to set targets that we think are obviously very achievable. At the same time, when you look at -- when we look at performance in year-over-year comparisons, I think we're really proud of what we're achieving in 2010.

You know, so the question being is can you do better than you think in 2010? I think the answer depends heavily on what ultimately happens in the economy. I think there's a ton of opportunities out there. I think we could do -- I do think we could do better in 2010 if things hit for us, but there is obviously a level of us wanting to make sure that the numbers that we're putting out there are realistic and achievable.

From a margin perspective, again, some of the businesses that we're trying to grow we think have better margin profiles. I have to say that's probably a little bit offset with competition in the market today. I think we have seen some -- a little bit of pressure on pricing, although probably not very significant. It's out there and there are still a lot of people that don't have a lot of work that need to fill up. And I think once that happens, I think margins are actually going to pick up quite nicely.

So I think when -- again, looking back in what we've been able to accomplish, everything that we've really done in the last couple years has been in spite of a very difficult economy, in spite of a lot of our customers reducing CapEx and reducing expenditures which puts pressure on pricing.

I think as the business turns and the economy starts improving, I think you're going to see us benefit I think a little bit more than others because I think we've been able to achieve some great things in a down market. I think we're going to be able to achieve even better things as the market starts to turn.

So it seems that you've been in some kind of nice little cushion, which might be justified at this point.

You know, again, we're talking about doing $2.1 million off of just over a $1.6 billion, so that's a lot of growth in a year. Obviously some of it's coming from Precision, but we're also projecting good organic growth. I think there's very few companies saying that. So I don't want to create the perception out there that we're being ultra-conservative either. I think it's a good plan. I think it's a solid plan. And if those are the numbers that we achieve in 2010, I can tell you that we'd be happy.

Got it. Okay. And the next question is I guess more so for Bob. And Bob, congratulations on the DSO line. I don't think people ignore that even if it's old school. And I guess my comment is more on amortization. Obviously you see a lot of amortization related to Precision in 2010, but from my understanding the pipeline business is high burn work. So should we assume that you get a nice little kick in 2011 in terms of your GAAP EPS as this amortization burns off a little faster?

That's true. You get a lot of your amortization the first two years. Really the biggest hit is the first year followed by the second. And you're right, the amortization number without further acquisitions would drop below 10 million.

Got it. Okay.

And just to add -- and just to add to your question, Tahira, there at the end. If you look at fourth quarter, our amortization was probably a little bit more than what we had projected or thought in Q4. It was about $6.5 million which was higher, a lot higher than I think we had stated on our -- as we had put guidance out for Q4.

Tahira, actually in our K, we've got a schedule with the amortization penciled out. So 2010 is 13 and 2011 without further acquisitions is $7.6 million.

That's a nice little kick that you get on the GAAP side regardless of organic performance. The next question I had was really to do with the bidding activity. And if I look at the Marcellus Shale play as you've been probably watching a lot of the positive headline news on acquisitions by ExxonMobil, Total, and now Mitsui in the shale place. There seems to be $3 billion of activity that is going to be bid out over the next year or two just in the Marcellus Shale play.

You have the Tiger pipeline and you have several other large pipelines in the Louisiana area as well. Could you talk about what you're bidding on with Precision? I know they've had more of an experience on long-haul pipelines on the Rockies, but would like to get a sense of what you're bidding on outside of the Rockies as well?

And also if you could provide a flavor of where that business is going in terms of fixed price versus cost plus versus where it's historically been.

So a couple points. A, I think that if you look at Precision's history, they are capable of working anywhere in the country under any type of conditions. So they -- and I think that's part of their strength. I think that there's a lot of projects out there. I think we're aware of most and bidding on most. We've got, again, a good book of business for 2010, so I think that there's others out there that need to fill their 2010 book that might be a little bit more aggressive than we are in 2010.

And again, there's a lot of projects bidding for 2010. There's a lot of projects bidding for 2011 and in multiple geographies. I think we're participating, and I'm not going to say in all, but I know we're participating in most. So we're excited by it and again, there's a lot of activity which has again, quite frankly, been quite surprising.

On the type of business side, we said it when we bough Precision, we felt that the business was going to start to transition more to fixed price. Currently in backlog we've got probably a nice mix still. We still have a lot of cost plus in our backlog. But again, we're comfortable going both ways. We did a lot of analysis when we bought Precision on both of the types of jobs that they did and felt real comfortable with both.

So we see the business moving a little bit more to fixed price, and again a lot of activity. We expect -- there's a lot of work out there today. We expect a lot of awards in the near future and even better yet, there's a lot of work that we know is coming to bid, which I think is going to bode very well for future years.

That's good. And I've got one other question and I'll hop back in the queue, Jose. You know there has been some buzz on the recent Consumer Electronics show about the 3-D TVs that are coming out. And I know I might be jumping a little early into the game, but my understanding is that will require a huge replacement cycle potentially on the sector boxes. Would love to get your idea on whether Direct TV has even started thinking about this and is it really too early to size up the market opportunity for you there?

Well I think it's more of a question for them, to be honest. But I do think as you look at our communications business in general and both how wireless and TV are starting to converge, which I think is absolutely fascinating. I think our habits of how we live and how we watch television and how we communicate are going to change over the next ten years much like they've changed over the last ten. And I think a lot of those technologies are going to converge.

I think there's a lot of things you're going to be able to do with your TV and your wireless handheld, whatever that is. And basically with the click of your wrist be able to transfer stuff from one device to another. So I think what's coming down the line is fascinating. I think it's going to require a lot more expertise in the ability to make homes smarter, make sets smarter. So I think those are great opportunities for multiple businesses that we have. And I think it speaks to our diversification across our whole business.

And I know we've talked today a lot about renewables and gas, but I think that there's a lot of other areas in our business that I think just have some phenomenal long-term potential with what's happening in the economy. So we're pretty excited.

Great, Jose. I've got several other questions, but I'll hop in the line. And once again, congrats on the good quarter.

Thank you, Tahira.

Next up we'll hear from Janney Montgomery Scott, Liam Burke.

Thank you. Good morning, Jose. Good morning, Bob.

Good morning, Liam.

Good morning.

Jose, on the wireless side, you've got a fairly big step up in demand from AT&T. How are you managing the growth and do you have any capacity issues in terms of being able to provision the upgrades?

You know, we don't think so. We're very comfortable with the team we've got in place and what we're doing today to really get ready for the ramp. I spoke in the remarks a little bit about how that business looks on a year-over-year comparison. We expect 2010 to be better than 2009. It's a little bit interesting because the business is somewhat different from a seasonality than I think the rest of our communications business in that at the beginning of the year, you're doing all your planning for the year, so I think we've got very good visibility into our full-year revenues, our full-year plan, what the customer is expecting of us, what type of work it's going to be, where it's going to be.

So we'll spend the first half of the year planning, engineering, permitting, getting jobs ready. And then there's going to be obviously a mad rush in the last six to seven months of the year to get the construction activities completed. The challenge is that we've got a big management team in place across the country, and obviously that's a high fixed expense. And as the volumes grow, the back end of the year from a margin perspective is substantially better than the front end.

So I think there's a financial obviously model there that we've gotten our arms around. I think we did a great job of it in 2009. We think it's a great business. But no question that 2010 is going to tax us, and we're excited about it and the good think is that every couple of months it seems to get better and better. So we're ready. We're actively out there trying to do as much as we can with our customers. Obviously AT&T is our biggest customer today, but we're making in roads with other customers and we're trying to diversify that business as well.

But even with AT&T alone with the announcements that they've made, they've got a lot of work to do all over the country. We're going to benefit in the areas that we help them, and quite frankly if there's other areas in which we can help them, we're trying to do that as well.

And if I looked at Bob's guidance on CapEx for next year and then look at your working capital needs, you're still going to cash flow very nicely in 2010. What would be a priority for that cash flow?

That's a good question, Liam, and I don't know that we have an answer today to give you. I think we're pretty bullish about what's going to happen in some of our businesses, and I think that we are going to have some working capital requirements if some of these businesses grow above and beyond what we expect and really what the potential there lies for.

So the problem we want to have is obviously being able to sit on a lot of cash and then be able to give you a more clear direction on that answer. But you know there's a lot of different options. We consider them all. We're looking at them all. And I think as 2010 plays out and as that cash balance builds, and then I'll think we'll be more clearer about what our priorities are for that cash.

Great. Thank you, Jose.

Thank you, Liam.

Our next question today is from Adam Thalhimer, BB&T Capital Markets.

Good morning, guys. Congratulations again on a great quarter.

Hey. Good morning, Adam.

First question for you, Jose, on backlog. If I look at 2009 on an organic basis your backlog was kind of flattish in 2009, which was very good compared to your competition. You think 2010 is the year of backlog growth?

You know, I think the answer is yes. I think the challenge in the answer is how does it come about seasonally, because if you think about it, if I look at our backlog there's a big chunk of backlog that's driven by MSAs and your typical business year-in and year-out which I think is very visible. And then we've got a chunk of backlog that's obviously tied to more of the project-specific work.

I can sit here today and I'm very confident that those project-related businesses have huge growth opportunities. I can't tell you exactly when those awards will happen. Whether they happen by March 31st close or May 1st or July 8th, right? And I think some of that drives what quarter they fall in. And I think that that may get a little bit more attention than it deserves. Because, again, some of these jobs are very fast burn jobs. So you'll have jobs, you'll burn them in six to nine months, and if you know you have the jobs in queue that are coming, whether they hit backlog in a particular period or not, I don't think it's as important as if it ultimately hits backlog, right?

It's important for it to ultimately hit backlog, but I think the timing is less important. So I think over time backlog is going to grow because I just think there's too much potential in too many of the businesses. So we're excited about that. I do think that as the year concludes, we'll burn a lot of the backlog off and we'll obviously add backlog in.

Okay. Thanks for that. And then, given -- it sounds like you're relatively happy with the current mix of your business, the current in-markets you're in. What do you start to think of as, given your existing corporate structure, what do you think of as your peak revenue and EBITDA margins now?

You know, Adam? I think we've put out what we think are very good 2010 numbers. Again, I think they're numbers that represent a very difficult economy. I think that again we're really proud of what we've accomplished in the last couple of years, but we've accomplished it in a period where others have really struggled. And I think that had the market responded or been there to really help us through that period, I think the results of our Company would have been substantially different and a lot better.

So it's a hard question in that we haven't been there. But I think that as the economy recovers, I think you're going to see this Company do a lot better across the board just based on what we've been able to accomplish on a difficult economy.

Right. I guess the question just relates to you've added some businesses which are more project related which have the potential to generate higher margins. So I was just trying to think of if the old target was 10% EBITDA margins and you've gotten there, kind of where the new target might trend towards?

Yes. And again I think what we're saying is when you look at our guidance for the year, we're just above that 10% EBITDA guidance that we guided to two and a half years ago when we were at 7%, so I think we've made tremendous improvement in that. No question that if we hit 10% for the balance of 2010 and we're sitting here and we've got to re-look at our numbers. We're not satisfied with where we're at, we're never going to be stagnant. We're never going to feel that we've hit a ceiling, so we're always looking to improve.

But I just think that we put a number out there a long time ago, and I think it's time to deliver on that number, give you a solid year where we hit that number consistently, and then once we've done that, then I think we can talk about new targets.

Great. That's it for me. Thanks.

Thanks, Adam.

Next up we'll hear from Mickey Schleien, Ladenburg.

Good morning, Jose.

Good morning, Mickey.

My question relates to wireless and wire line. As you know some of the issues that the wireless carriers are facing to keep up with growing data traffic have to do with non-wireless infrastructure. So there is a gray zone between wire line and wireless. Could you tell us how you segregate the wire line and the wireless revenue streams from your perspective with respect to the guidance that you've provided us?

So, Mickey, it's a good question because it's somewhat undefined. Obviously if we're doing a lot of fiber-to-the-cell side work, a lot of that is falling in the wire line business unless it's being led by a wireless company, right? So I think even within our customers there's a gray line and every day that line is being challenged.

I think one of the advantages of MasTec and one of the things that we sell is we're one of the few companies out there in the country that can boast that we cross that gray line very easily. We can perform both services on the wire line and wireless side regardless of where in the network it hits. We're able to provide that service, and I think that's a fairly unique skill set.

So I think we try to sell ourselves as the perfect solution to that gray line, but it's a gray line that continues to be debated today amongst our customers, and we don't know where that'll ultimately end up. Again, when it falls within our wire line customers and it's coming through our wire line business, it falls in our wire line numbers. And if it's being managed by our wireless group, then it actually falls through our wireless business.

Again, it's all the same. We're using MasTec resources to complete it, so the costs fall where they do and at times we have -- so that's kind of how it plays out.

Thanks, Jose.

Next up is John Rogers, D.A. Davidson.

Hi. Good morning, and congratulations.

Thank you, John. Good morning.

Jose, you talked about this already, but if you could give us a little bit more clarity. In terms of the backlog of the $2.1 billion, how much of that falls into master service agreement type work versus project construction?

You know, I don't know that we've got that number readily available to give you. I think it's a good question and it's maybe something we'll consider doing in the future. I would want to say it's probably just very similar to our business as it stands today, so our MSA business is greater than our project business, so our backlog is going to be greater in the MSA side than it is on the project side.

Okay. And will that be true in 2010?

It depends. It really depends on the projects that you get, on the burn of the projects. If a lot of our projects on the backlog are projects that we're going to burn through quickly, then I think that's a safe assumption. I think if we start seeing awards that are $400 million or $500 million and they're projects that'll take a long period of time, multiple years, and then I think that changes.

Oh, I'm sorry. I meant for 2010 in terms of revenue.

I think it will continue. I think obviously the project side of the business is growing. So I think the percentages will probably adjust a little bit. But I do believe that MSAs will still be the greatest percentage of our revenue in 2010.

Okay. And on the project side of the business, whether it's the wind, pipelines, or big transmission projects, how much of that is fixed price versus some sort of cost plus or unit pricing?

Well, a lot of fixed price is unit driven where if something changes on the job based on units, you're fixed price is going to change based on those same units. Now usually those units are well identified going into the project. So I would say that the bulk of our business today is unit price driven. There is some fixed price that's not unit price driven, and there's some cost plus. But I think the bulk of our revenues are unit price driven. The bulk of our project work is unit price driven with a mix then coming in between fixed price and cost plus.

Okay. I'm just trying to understand because it sounds like on the pipeline business, you're saying at least initially the wave may be shifting over towards the fixed price? And I realize that potentially can be more profitable but also carries more risk. Is that fair?

It is fair.

Okay. All right. Well, thank you. That's all I had.

All right, John. Thank you.

Ladies and gentlemen, that does conclude our question and answer session. At this time I will turn the conference back over to Mr. Jose Mas for any additional or closing remarks.

Again, I'd like to thank you for participating today and I look forward to speaking again in our first quarter call. Have a great day.

Ladies and gentlemen, that does conclude today's conference. Thank you all for your participation.