MasTec Inc (MTZ) 2010 Q1 法說會逐字稿

Welcome to MasTec's first quarter 2010 earnings conference call initially broadcast on May 6, 2010. 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, Nancy. Good morning, everyone. Welcome to MasTec's first 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 subsquent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press release filings with the SEC. Should one of 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 make certain non-GAAP financial measures in this call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAPP financial measures can be found in our earnings press release or on the investor relations section of our Web site located at MasTec.com.

With us today we have Jose Mas, our Chief Executive Officer, and Bob Campbell, our 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 one hour. Jose?

Thank you, Marc. Good morning and welcome to MasTec's first quarter call. Today I will be reviewing our first quarter results as well as providing my outlook for the markets we serve. First, some first quarter highlights. Revenue for the quarter was $450 million, a 32% increase over prior year's quarter. EBITDA increased 20% to $34 million versus $28 million in last year's first quarter. We generated organic growth during a very difficult economic environment.

Cash flows were strong, and EPS was $0.10 a share for the quarter. We had a solid first quarter. Actually we performed better than expected. On our last call I mentioned the severe weather being experienced early in the quarter. While the weather negatively affected some of our business during quarter, the impact was offset by the strength in our Pipeline, Renewable, and Wireless business. Our Pipeline business accounted for nearly 25% of revenues for the quarter, with our most recent acquisition representing over 80% of that number.

Our Renewable business was up over 50%, and our Wireless business more than doubled from last year's first quarter. Over the course of the last few years I have discussed our diversification strategy and its focus on what we believe are higher growth industries. We are beginning to reap the positive results from that strategy. We have been through a very difficult economic period, and while there are many signs of improvements it's still tough out there. Despite that, by the end of 2010 we expect revenues to have doubled and EBITDA to have tripled that of 2007.

And we did this during a very difficult economic environment. As the economic environment improves, we believe we will see significant opportunities for substantial improvement in our business model. In general, over the past few months we have seen a large increase in the number of opportunities that are available to us in our different markets. Today our resources remain underutilized but we are holding onto those resources despite a short-term cost in anticipation of things to come. We have built a solid portfolio of service offerings and are well-established in growing markets. I've said it before and I'll say it again, MasTec has never been better positioned than it is today.

Now I'd like to cover some industry specifics. Our communications business accounted for 50% of total revenues for the quarter compared to 58% in last year's first quarter and 52% in the fourth quarter of 2009. Within communications, our Install-to-the-Home business was down slightly year-over-year and flat relative to the fourth quarter. While we are entering the weakest quarter of the year with DirecTV, our largest communications customer, we are encouraged by recent activity and expect a slight year-over-year increase in revenues in the second quarter from DirecTV.

Our Wireline and Wireless business were about equal in revenue in the first quarter. As I stated earlier, Wireless revenues doubled on a yearly basis but were down sequentially as expected. In 2009, over 65% of our Wireless revenues were generated in the third and fourth quarter. While we are experiencing significant year-over-year growth, we expect a similar percentage of work to be performed during the second half of this year. AT&T, our largest wireless customer, recently gave CapEx guidance for 2010 of between $18 billion to $19 billion, yet they only spent $3 billion in the first quarter. They also indicated that wireless CapEx should increase 34% on a year-over-year basis. We currently have excellent visibility in this industry, our business is progressing as expected, and we plan to see significant year-over-year growth.

Now I'd like to cover our utilities business which comprised 48% of revenues in the first quarter compared to 36% last year and 46% in the fourth quarter. The growth in both our Renewable and Pipeline business offset the reduction in our Transmission and Distribution business. Let me cover the Distribution and Transmission business first.

As we have stated on previous calls, our Distribution business remains challenged. And while this business is beginning to stabilize, we don't expect much improvement in 2010. As it relates to Transmission, we have increased our market presence and expanded our geographic reach and service capabilities. While not currently a substantial portion of our portfolio, we continue to believe that the Energy Transmission business will be an area of opportunities for us in the future.

As it relates to our Pipeline business, we had a solid quarter. Precision Pipeline, our most recent acquisition, performed as expected, generating approximately 20% of revenues for the quarter. The pipeline construction backlog for 2010 remains strong, and we were recently awarded two good-sized projects in the Northeast. While Precision has always had a presence in the Northeast region, it continues to grow and we expect it to become a larger piece of Precision's business in the future.

Our largest 2010 pipeline project will be our work on the Ruby Pipeline. Although we anticipated that this project would start late in the second quarter, construction start is now expected in early July. The delay will affect second quarter revenues and earnings but should not impact our 2010 expectations.

We remain encouraged by the level of activity and the number of projects we are seeing and bidding. Bid activity is very strong, and our expectation is that both 2010 and the foreseeable future will present us with even greater opportunities. Now I'd like to cover our Renewable business. Last quarter we announced that our 2010 workload stood at 922 megawatts of construction. We have since been awarded two additional projects totaling 180 megawatts, bringing our 2010 work plan to just over 1100 megawatts.

Our 2010 workload, as it stands today in May, is greater than any we have ever constructed in a given calendar year. We continue to work with a strong customer base, and we expect 2010 to be an excellent year. Bid activity remains strong, and we are seeing an increase in planned projects and RFPs both for the remainder of 2010 and for 2011. Our 2010 guidance assumes completing somewhere between 1300 megawatts and 1400 megawatts, and we feel we are well on our way to accomplishing that.

As it relates to solar energy, we believe it will provide a viable opportunity for future growth. We are making significant investments in the necessary resources to compete in that market. We expect our growth in this sector will be organic and remain hopeful that we will build a major solar energy project in 2011. While small, our government business was down 50% year-over-year in the first quarter.

This has been a very competitive market as many contractors have shifted to compete for government dollars. However, over the last two months backlog has doubled in this business, and activity is strong.

In summary, MasTec is performing. The acquisitions we have made over the course of the last few years are doing very well, and in many cases ahead of our internal projections. We have a great team in place in place and the pace of opportunities is increasing. 2010 should be an excellent year for MasTec and early signs are that 2011 will be even better. I would now like to turn the call over to our CFO, Bob Campbell. Bob?

Thank you, Jose, and good morning. I'm going to cover three areas today. First quarter earnings, second quarter guidance, and then cash flow and liquidity. First I'll mention a few highlights and then I'll drill down into the details.

For Q1, my highlights are Q1 revenue of $450 million was up 32% from last year's Q1. Utilities or energy revenue grew to 48% of our total revenue versus 36% a year ago with the help of the Precision Pipeline acquisition and good Renewables revenue. Q1 EBITDA of $34 million increased 20%, or by $5.5 million versus last year. Q1 gross margin as a percent of revenue dropped as a result of our increased seasonality, carrying excess capacity for the second half of the year, higher fuel costs and unusually bad winter weather. Gross margin was 13.6% for the quarter, compared to 15% a year ago. Q1 G&A as a percent of revenue improved to 6.1% compared to 6.8% a year ago.

EPS of $0.10 was down from $0.16 in Q1 last year. The decline in Q1 2010 EPS was primarily caused by the book tax rate going from 1% last year up to 40.6% this year. This item alone hurt the quarter for a negative $0.06. The book tax rate remains mostly noncash because of our NOLs. We were also hurt by higher depreciation and amortization, higher interest, and a higher share count, and the impact of all of these items is accentuated in our seasonally weakest quarter. Q1 cash flow from operations continued our strong cash flow trend with $35 million, and free cash flow was $30 million.

Cash on hand grew to over $100 million, and our liquidity grew nicely from $160 million at year end to $201 million at the end of Q1. All of our cash-related metrics benefited from a big drop in our accounts receivable day sales outstanding. Our DSOs dropped 10 days from 60 days at year end down to 50 days at quarter end, and that's a record low level for MasTec.

Now for the Q1 details. Q1 revenue was up $108 million year-over-year to $450 million. Increases in Renewables, Pipeline and Wireless were partially offset by weakness in some of our other markets. I'll talk about increases with specific customers a little later. Q1 gross profit margin declined from 15% last year down to 13.6% this year. The decline reflects our increased seasonality, carrying additional capacity for the second half business ramp up, higher fuel costs, soft pricing, and unusually bad winter weather.

As we mentioned on the year-end call with our current business mix, we operate much more in northern weather-affected areas, plus this winter was unusually bad in terms of lost days in productivity, including in the mid-Atlantic and Southeastern states where we normally don't get much bad weather. Depreciation and amortization of $14.2 million was up almost $4 million from Q1 last year, reflecting primarily the growth in fixed assets and Pipeline, but another big driver was a $1 million increase in amortization expense for acquisition-related intangibles. That's also for Precision.

For Q1, G&A expense improved from last year to 6.1% of revenue, down from 6.8% in last year's comparable quarter. We're doing a pretty good job keeping our overheads down as we grow. Net interest expense for the quarter was $7.4 million compared to $5.8 million last year due to higher debt and lower interest income. I'll talk about our capital structure a little later. As I mentioned, Q1 EBITDA was up $5.5 million, while EPS was down $0.06.

The drop in EPS is primarily due to a dramatically higher tax rate and also higher depreciation and amortization expense, higher interest expense, and an increased share count. As I mentioned, going from a 1% book tax rate last year to a 40.6% rate this year negatively impacted book EPS by $0.06 per share. And higher depreciation and amortization, interest and a higher share count also hurt Q1 to Q1 comparisons, and the impact of these fixed cost items is accentuated in our seasonally weakest quarter.

For the first quarter of 2010, the 10 largest customers were -- DirecTV was 27% of total revenue. Enbridge, a pipeline customer, was 19% of total revenue. AT&T was 15% of total revenue, up from 11% last year. The growth is coming from our Wireless business.

Duke Energy was 7%, and that's for wind farm work. Edison Mission, another wind farm customer, was 5%. Great River Energy was 3%, we're building a 100 megawatt combined heat power plant for this customer. Verizon was 2% compared to 5% last year. The drop reflects a slowing of FiOS spending. EXCO [Holly], another pipeline customer, was 2%, Progress Energy, a transmission and distribution customer was 2%. And finally Centurylink EMBARQ was 2% of total revenue.

Regarding diversification, our top 10 customers now include one satellite television customer, three telecom customers, two pipeline customers, two wind farm customers, and two traditional electrical utility customers. Regarding concentration with DirecTV, the concentration peaked at 47% of total revenue in Q1, 2008. In Q1 this year it was down to 27%, and for the full year it should be in the low to mid 20%s. We expect DirecTV to drop below 20% of total revenue over time as Renewables, Wireless and Pipeline all grow faster than DirecTV. We believe that we have successfully addressed our DirecTV concentration issue.

Today backlog is about $2.1 million. That's an 18-month backlog number. The comparable number of Q1 a year ago was about $1.8 billion. Remember that since over 50% of our revenue comes from master service agreements, or other contracts for continuing services, our backlog includes an estimate of the next 18 months of revenue from those contracts.

Now let me talk about our cash flow liquidity and our balance sheet. First quarter net cash flow provided by operating activities was $35 million compared to $49 million last year. Q1 free cash flow was $30 million. Our cash flow continues to benefit from our large tax NOLs. First let me cover how the NOLs impact our cash taxes, and later I'll cover our 2010 book tax accrual rate which is dramatically higher than our actual cash taxes. Currently we have a federal tax net operating loss, or NOL, of about $10 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 likely exhaust our NOLs in the latter part of 2010, so we expect to pay some cash taxes on our 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 flow for 2010.

As I mentioned in the first quarter we had a dramatic drop in accounts receivable day sales outstanding or DSOs. At quarter end our DSOs were 50 days compared to 64 days a year ago and compared to 60 days at year end. That's a record low level of DSOs for MasTec, which was helped by the inclusion of Precision Pipeline into our numbers.

It is worth noting that over the last five-years our DSOs have dropped from 86 days down to 50 days. The DSO reduction of course contributed to our continued strong cash flows and increased liquidity. Regarding capital spending, we only spent $6 million in Q1. In our 10-K we had an estimate of $40 million to $49 million for the full year, which was conservative, but at this point I would estimate that CapEx will more likely be in the $30 millions for 2010. To summarize our cash flow characteristics I would say this; EBITDA continues to grow nicely. DSOs in the 50s are really good.

CapEx estimated to be in the $30 millions this year is modest. Cash interest estimated at under $30 million is also reasonable. And our cash tax payments should be modest for 2010. Therefore, our cash flow should be very good again this year. At the end of the first quarter we had $103 million in cash compared to $89 million at year end, and $58 million for Q1 a year ago. Our liquidity has continued to improve with cash and availability under the Company's credit facility totaling $201 million at quarter end compared to $160 million at December 31, 2009, and compared to $91 million at Q1 2009.

Let me talk for a minute about our capital structure. As a quick capital structure summary at quarter end we had $537 million in equity, $431 million of total debt, only $328 million in net debt, that's net of cash, and we expect to have $218 million to $223 million of 2010 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 prior to maturity. 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 250 on our bank revolver, only 4% and 4.25% on our two convertible notes, and we paid 7 5/8% on our senior notes.

My overview of what we've been able to accomplish over the last couple of years is as follows. We have been able to expand into a number of new markets with excellent growth potential, dramatically reduce our DirecTV concentration, improve our operating cash flows, all while maintaining good liquidity and a solid capital structure.

Now let me cover Q2 guidance. We currently expect Q2 revenue of about $465 million, and EBITDA of $43 million with fully diluted EPS of $0.15. As Jose mentioned a major pipeline project delay is negatively impacting our second quarter guidance. Q2 guidance reflects a 20% increase in revenue, and a $7 million or 20% increase in EBITDA versus Q2 last year. Q2 EPS guidance of $0.15 compares to $0.25 last year. And as I noted for Q1, the dramatic increase in book tax rate has a big negative impact on book EPS comparisons.

The Q2 book tax rate last year was 2% and this year we expect 40.6% which has a negative impact of $0.09 per share for Q2. And it is mostly noncash because of our NOLs. In addition, we have the same negative comparisons for higher depreciation and amortization and interest and a higher share count that I mentioned relative to Q1 comparisons. Thus we will go through Q2 with somewhat higher fixed costs while we have overcapacity or underutilization that Jose mentioned with resulting drag on the Q2 P& L.

We continue to estimate full year 2010 revenue of about $2,100,000,000, and EBITDA of $218 million to $223 million and GAAP fully diluted EPS of $0.92 to $0.95. That's revenue growth at 29%. And EBITDA growth of $65 million to $70 million, or 42% to 46%. 2010 GAAP fully diluted EPS of $0.90 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 10.6% for 2009. The book tax rate increase is a $0.43 to $0.45 per share negative drag on 2010 GAAP earnings. And as I've already noted, our cash taxes for 2010 will be modest so the tax accrual is mostly a noncash charge.

As we look at today's mix of MasTec businesses, we have said that we're excited about the growth prospects for renewables, natural gas petroleum pipelines and processing plants, wireless, electrical transmission, and finally industrial construction by Wanzek. Much of our growth has come from and will continue to come from relatively large construction projects and not from our traditional master service agreement work, other than in Wireless.

Master service agreement revenue or other similar contracts for continuing services, has reduced from about 75% three years ago down to 53% for Q1. The implication of this shift is simple. While we still have a large amount of contractual, generally recurring revenue, we have become somewhat more lumpy in our quarterly earnings.

We maintain significant and costly infrastructure in Renewables and Pipeline, which gives us better earnings, and I believe better margin potential, but it also hurts us on the P&L when we're underutilized. That was part of the story for Q1 earnings and that's part of the story for the Q2 guidance that I just mentioned. The other side of that coin is that 2010 should be the tale of two halves, a light first half with holes in our schedule for Renewables and Pipeline, followed by a dramatically stronger second half driven by more wind and pipeline work. And beyond the lumpy nature in these two important markets, our AT&T Wireless business continues to be very second-half-loaded again this year.

Also it is worth noting that while we can have GAAP earnings challenges in lower utilization periods, some of the charges are noncash and EBITDA and cash flow can still be pretty strong as evidenced by Q1.

In summary we're off to a good start for the year. Q2 will be a little lighter than we had previously thought. And then we expect a very strong second half driven by Renewables, Pipeline and Wireless work. And we should have another terrific cash flow year. That concludes my remarks.

And now let me turn the call back to the conference operator for the Q&A session.

(Operator Instructions.) We'll take our first question from Alex Rygiel from FBR Capital Markets.

Thank you, good morning, gentlemen. Very nice quarter in a difficult market.

Thank you, Alex. Good morning.

Good morning. First Jose you mentioned some new awards in pipeline work in the Northeast. Could you quantify that? And was that included in your first quarter backlog or does that fall into your second quarter awards?

Alex, it falls into our second quarter awards. What I can say about pipeline backlog is if you think about the performance that we had in Q1, backlog from Q4 to Q1 was very similar. So I think we did a good job in picking up a good portion of the work that we worked off in Q1.

Great. And you also referenced the solar market and the possibility of a major solar project in 2011. Could you help us to understand your definition of major? Is that $100 million project, is it something greater than $200 million? Bracket it for us if you could a little bit. And possibly give us some better color on the likelihood of that.

You know, we'd take either one, Alex. I think that we've spent a lot of time especially over the last six to nine months in really developing a solar strategy. We brought on a lot of people at the company. We've invested a lot in really the resources that we think we're going to need to make ourselves a viable player in that market. There's all different size of projects but they tend to be very large. So yes, there's $50 million projects and there are projects well over $200 million. So solar projects in general seem to be very large with a lot of -- there's a lot of equipment provided which drives up the dollar so they are big projects. And those are the types of projects that we are going after.

As it relates to your guidance, some of the variables to achieving your guidance obviously you mentioned wind, you need to win about 200 megawatts more of work through year end. Natural gas, Ruby probably need to start in the July time frame. And on the Wireless side AT&T does need to ramp in the second half. Any other major variables that we should think about and watch for in order for you to achieve your guidance for 2010?

I think you covered them, Alex. And we feel very comfortable about all of them, quite frankly. On the wind side, activity has really picked up. We're obviously sitting in a better position than we've ever sat in from a backlog perspective, from a total megawatt perspective. But we're looking at a very large additional megawatt count for the balance of this year going into 2011 that's either being negotiated or bid or we know it's coming out so we're very comfortable in that market.

Pipeline activity is very strong at this point. There are a lot of large and small projects that are in queue right now so we feel good about that. And I think we've always felt good about the Wireless business. I think we have solid visibility for the rest of the year there with very little risk. So we feel good about those three. And there's no question that those are the three that are going to drive our performance in the second half of the year.

Great. And do I have one request. Given that your customer base is absolutely broadening out here, especially across your different segments, it would be very helpful to your shareholders and the analysts if you could think about and consider starting to disclose profit by business segment. So with that I'll leave it and get back in the queue. Thanks, Jose.

Thank you, Alex.

We'll take our next question from Vance Edelson from Morgan Stanley.

Hi, thanks a lot for taking the questions. Congrats on the quarter. With regard to the pipeline delay and work not commencing until July you mentioned this will impact the second quarter but not the full year. I would think that starting late kind of pushes everything back in which case this would also have some impact on full year revenues, or are you saying you can catch up over the remainder of the year?

Good morning, Vance. In dialogues with our customer, the completion date has not changed so we still expect the completion date to be the same as we've been planning for all year. So we expect to be able to accomplish that and the delay has not been severe, it's less than a month, a couple weeks. It's a big delay because the revenues on that project on a monthly basis are going to be very large. It's a cost reimbursable project so we will end up working more hours and more shifts. So we feel very comfortable that we are capable of completing that project under the time lines that customer is asking.

Okay, that's great to hear. And as my followup, regarding fiber deployment, what do you see happening over the next couple of years with FiOS and you versus your expectation that they'll curtail deployment and if so how quickly will it tail off? If you could just give us a feel for that?

It all depends on what time frame you want to look at, Vance, in my opinion. I think long-term all of the telco companies are going to have to decide what kind of product they want delivered to the home. I still believe that as we're sitting here 10, 15 years from now that we're going to have a much more fiber-rich backbone system. No question that some of our customers are curtailing back on their plans, especially Verizon's been very vocal about what they're doing with FiOS.

We've seen it in our business, our Verizon business has dropped the last couple of years. It's continued to drop on a year-over-year basis in Q1. We expect that to kind of stay steady for the balance of the year. It's going to be interesting to see what happens in that market place and ultimately what strategy the telcos deploy to offer higher speed and video. We don't have all the answers for that. I think that's part of what's always made our business exciting is the rapid change of pace and the change of technology. I think that creates opportunities in and of itself.

But right now we expect that piece of the business to slow down a little bit as we look at 2010. Obviously there has been a lot of federal stimulus dollars awarded on the broadband side. There's a lot of talk about a national broadband policy. All of those things we're staying very close to because they could have an impact on our business. And overall we feel good with our telco business. We think we're going to have a good 2010, not a great 2010 but a good one. We do see signs of improvement, especially on the maintenance side. So we feel good overall but there's no question that as it relates to some of the fiber deployments our customers are rethinking where they're currently at and what the deployment is going to look like for 2010.

Okay. Great. Thanks for the color there. And just one quick house keeping question if I may. The mix of business with DirecTV right now, installs versus upgrades and maintenance, do you have that breakout handy?

It really hasn't changed. About two-thirds of our business is related to existing customers, be it upgrades or service, and I'd say about a third of it is related to new installs and that's pretty much been steady for the last year, year and a half.

Okay. That's great. Thanks again, Jose.

Thank you, Vance.

Moving next we will go to Liam Burke with Janney.

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

Good morning.

Jose you talked about -- it's not surprising the Distribution business is still tough. But you did talk about some life in the Transmission side. Where do you see the activity and what do you think is driving it?

I think there's obviously been a lot of press on Transmission. We think that best years of Transmission are yet to come. We think there's a lot of big projects that will be out later this year going into next for construction starts. We're a little bit smaller in that business. We're competing for a lot of the mid-size and smaller jobs. It was a tough year end as we look at the end of 2009. Activity picked up as the year went on in 2009. Activity still continues to be somewhat brisk at the beginning of 2010. We're trying and working hard to position ourselves to be able to compete on different-sized projects in our larger projects. I think we've made some inroads. I think we're viewed differently in that industry today than we were a year and a half ago or two years ago. So I think we're making progress. Our intent is not to be a small player in Transmission but rather a large player and we're working hard to get there.

Great. Thank you. And Bob, the accounts receivables came down considerably as you pointed out in your commentary. What were you able to do differently or is it just the make up of the business, and 50 days, is that a number you can continue to live with?

To be perfectly honest, the inclusion of Precision helped us significantly. I wish I could just claim it was great financial management, but numerically Precision helped a lot. I don't think we're -- I think 50 days is something -- we've never been at this level, never even been close to this level. I think we're going to watch it for a few months before we come out with a new public goal. If you remember for a long period of time, a number of years our goal was to get under 60, 60 or better. And now that we're there, you'll hear us come out with a new goal. It's hard to run a business without a goal. But a lot of that was just mix, the inclusion of Precision.

Great. Thank you.

And we'll take our next question from Adam Thalhimer from BB&T Capital Markets.

Good morning, guys. Thanks.

Good morning, Adam.

Jose, is the Ruby contract a cost plus.

It's a cost reimbursable project, Adam.

I mean, you would characterize -- would you characterize the pricing on that contract as better than what you might get on new bids in today's environment?

No, not necessarily. I think we've talked in the past about the difference between fixed price and cost reimbursable. I think you obviously have more potential upside on a fixed price if you perform well. I think we're very comfortable in being able to perform both ways and think there's benefits to both. So I wouldn't necessarily say that it's a different margin profile, nor would I say that based on the market that you would get different pricing today or different margins today on projects. I don't think that's the case.

Okay. And the other question I had, just listening to FPLs commentary on wind, two quarters ago they said it was getting easier to sign PPLs with utilities. This quarter they said it was getting harder again. I mean, how do we read that? What are you hearing from developers about these types of issues?

You hear something different from a lot of different points in the industry. So we've got our customer base that we deal with. And I think that to best summarize what we're hearing it's in our performance. We're sitting on 1100 megawatts of construction for 2010 which is the best we've ever had. We're looking at dramatically more than that in RFPs and in projects coming. So we see a very strong pipeline in the business. We've got customers that are very, very bullish on the industry. We've got other customers that aren't as bullish. So overall it's a very different environment this year than it was last year, in a positive sense. So we're excited about what we're seeing. There's mixed messages being sent by different people. Some are a lot more successful in this market than others. But we think that industry is brisk. We think it's going to finish out really strong. And we think 2011 is going to be even better than 2010.

Do you still think there will be some developers that want to take advantage of that convertible ITC deadline at the end of 2010?

Absolutely.

Okay. Great. Thanks for your time.

Thank you.

Moving next we'll hear from Tahira Afzal from KeyBanc.

Good morning, gentlemen. Nice quarter.

Thank you.

Just to start with, I would love to get a sense as you talk to your clients about solar and wind, is one growing faster than the other for your clients? And how do you see opportunities in both on a competitive level?

You know, Tahira, wind is far ahead of solar in the industry. So there's obviously going to be a lot more wind built in 2010 than there will be solar. I think solar has accelerated from a very, very small level to a growing market, so I think solar is a rapidly-growing market in its infancy, which gives us an opportunity to compete in that business really from the ground level and be able to compete well at it. So wind is going to be bigger. Wind is going to have more megawatts. Solar projects are different in that the contracted amounts available for companies like ours are dramatically larger. I think it's going to be a growing part of the Renewables base for many years to come.

So I think it's a viable business. I think it's a good one. I think it's one that we're going to try to get involved with in a big way. And I think our competitive position is just as strong as it is in wind. We're starting to see a lot of the companies that we've traditionally performed wind construction for begin to get into solar and look at solar a lot more actively than they have over the last couple of years. So we think there's going to be a lot of synergies based on our customer base. Again we feel good about our competitive position. We think it's a growing industry, one that's in its infancy and we're getting in at the ground level which I is a little bit different than wind.

Got it, okay. And Jose, if you look at the wind installation business, obviously with one track you have a bigger advantage because it seems to be more capital intensive in a sense in terms of the cranes and equipment you need. If you look at solar, is there any competitive barrier you can point to that gives you a conviction that you can have the same competitive edge?

You know, we've always said that our competitive edge doesn't come from our equipment or the capital that we've invested in the business but rather the people and the reputation that we have. We think that that's a big driver in the Renewable business, and we think it will be a big driver in the solar business. And I think that gives us an edge. So I think our resume, what we've done in wind, what we've done in Renewables, makes us a player immediately. It obviously does help that we've got significant capital allocated into the renewable business. But I think it has a lot more to do with the reputation and people. I think we have great people and a great reputation.

Got it. Okay. And second question and then I'll hop back into the queue. You know, earlier on you talked about maybe taking (inaudible) experience with AT&T and trying to replicate that and make inroads on the Verizon Wireless side. I would love to get a sense of how that initiative is progressing and how we can track that within your numbers.

It continues to be a priority for us to expand our customer base in the Wireless sector, not just with Verizon but with many others. I think today we are working for Verizon, we're working for some others. The difficulty is that obviously AT&T is growing at a very fast clip. It's a very large business and we've got a lot of resources and assets to meet their plans. And that becomes our number one priority because of their size. But we're not taking our eye off the ball. Customer diversification in that industry is very important. I think we've made some inroads, not as quickly as I'd like, but I think we're making progress. I think that for it to show up in numbers, our top 10 customers are pretty large when you look at them from an annual perspective. So we're going to have to grow one of those businesses to be pretty big before you can track it on a top 10 list but that's our goal. And we're working hard to and making progress. And we think we'll get there.

Great. And again, congratulations on a good quarter and I'll hop back in the queue.

All right, Tahira, thank you.

We'll take our next question from William Bremer from Maxim Group.

Good morning, gentlemen. Fine execution this quarter.

Thank you and good morning.

Good morning.

Jose, let's start off with the solar aspect. You said you're making some investments in that area. Can you give us an idea of the CapEx being deployed there and what exactly are these investments?

No, the investments are in people. I mean, it almost comes back to the question that was just asked and really the answer around people and reputation. I think as this business grows and as we get into this business that's one of the most important aspects. We've done a lot around that. We're learning the business. We're learning the development side of the business so that we understand what our customers' needs are and what they can accomplish and really trying to bring innovative solutions to their business model and what they're trying to do.

So as I look at 2010, we'll spend a couple million dollars in people and in some capital to really grow that business. And I think it's going to pay off in a big way.

Okay, great. Now moving into pipeline awarded two projects in the Northeast. Congratulations there. Can you give us an idea of the miles on these projects as well as are they the large size -- let's say 48-inch pipelines or are we talking smaller sizes?

It's a good question because it leads to probably a discussion in that industry. I think when you look at the pipeline industry you have two types of projects, right? You've got the longline projects which I think we're a very good player in today and Precision brought us that capability and they're executing on that side of the business in a great way. And then you've got all the shale plays and obviously the work that's coming off the shale plays which is an increasing piece of that industry. And if you think about MasTec, we've got a southern play on that through an acquisition we made a couple years ago. We now have a northern play of that with Precision.

I think those businesses are seeing an incredible increase in activity. I think that long-term those are going to be very large business opportunities for us and all of those shale plays are going to represent a much bigger part of our business going forward. So we're very actively chasing those. Some of those are large pipe, some of those are small pipe, some of those are longer mileage or shorter mileage. And to be quite honest it doesn't really matter to us today as long as from a total dollar perspective we're picking up our share of that. That business is brisk and we're going after that aggressively. There's also a lot of long line work out there that we're competing for. Activity is good there. So we're looking at both. The projects that we were awarded in the first quarter were mixed. We had some of both in there. And I think you'll continue to see that as the year goes on.

Okay. Hey, Bob, just a little -- some house keeping questions here. In terms of the D&A for the quarter is $14 million. I'm expecting a little bit of a ramp there. But how much of a ramp should we be using forecasting for depreciation and amortization going forward?

If you look in the back of the press release, we've got a Q2 guidance number. I'll give you the number. It's $14 million for D&A.

Okay. And then on -- okay. And then on --

It's relatively flat with Q1.

If you look at it for the year, it's $57 million in our guidance versus about $50 million for last year on a full year basis.

Okay. Thank you. And then fully diluted shares outstanding, considering the converts?

Yeah. For the rest of the year we should be at roughly 91 million shares with both converts being dilutive.

Okay.

So on that second convert, you'd be adding back the after-tax interest and adding in the shares. And for everyone's benefit, the after-tax interest on that is $631,000 per quarter, and the add-back on the share count is 6,462,000 shares.

And just to remind everyone, every quarter we've got to do the test on each convert. And we have to take the method which is more dilutive. And in this quarter and we think only in this quarter keeping that one convert out of the share count and not taking back the interest expense was more dilutive and that's why it was booked that way in Q1.

Okay.

To be very precise, if net income in a quarter is over $7,475,000, both converts will be dilutive.

Excellent, Bob. Thank you.

And with our guidance out there, they'll both be dilutive the rest of the year.

Excellent. Thank you.

And we'll move to the next question from Veny Aleksandrov from Pritchard Capital Partners.

Good morning, gentlemen. Great quarter.

Good morning.

To go back to the pipeline business, you said (inaudible) activity is great, small projects, big projects. The Ruby project was a very significant one. From what you're seeing out there, can we expect another one of this scale or is there going to be smaller or shorter term?

You know, there are big projects that are -- that we'll be bidding, that are bidding. So we're hopeful that we'll continue to be able to perform on projects like Ruby every year.

Okay. Thank you. And then can you give us total megawatts that you're bidding on right now on the wind side? Bidding activity is strong you said, but can you really quantify that for us?

You know, I can't. I think what we're looking at is bids that are outstanding, bids that we know that are coming that we've either provided some sort of preliminary pricing on or we know will be bid in the course of the next few months. Sitting at around 2500 megawatts. It's obviously a very large number. We don't expect to win anywhere near that, but we're going to compete for it. Some of those projects may ultimately not get built but we think a large percentage of those will. So that's probably a strong a pipeline as we've ever had. And again we're very encouraged.

Sounds that way. Okay. And my last question, you talked about solar but in the past I remember you talking about geothermal as well. Are you moving forward on this side? Are you investing more? And what's the status?

We didn't take much time today talking about our Industrial group and the things that we're going after there. We're obviously building as Bob mentioned a combined heat power plant. We're very bullish long-term on our industrial business. We're looking at all types of industrial work, both on the petroleum side, the biomass side and power work in general. We made some -- actually we made some very key hires this quarter from some different people from the industry that we brought together. We opened an industrial office in Houston. So we're making an investment in that business again. We think it's going to be a bigger part of our story, and hopefully it will be something that we address over the coming quarters.

Thank you so much. Those were my questions.

Thank you.

And we'll go next to John Rogers from D.A. Davidson.

Hi. Good morning.

Hey, good morning, John.

Jose, could you talk a little bit, especially for the large construction projects, the Pipeline, and then the Energy markets, kind of where margins are -- I know you don't give segment data but where you expect to see those margins over the next couple of years? And is it significantly different from what you're seeing right now?

I think you can answer the question by going back, right? When you look at the margins that Wanzek had when we bought them and you look at the margins that Precision had when we bought them, have margins been somewhat challenged over the course of the last year as the market and as the economy in general have deteriorated? The answer is absolutely it has. (Overlapping Speakers).

What type of magnitude?

And we've tried to quantify that in the past, we've said that margins are probably down a couple hundred basis points -- those margins tended to be higher anyway but they're down a couple hundred basis points from where they were at their peak. I think it's very project and industry-driven. I think there's still projects and industries out there where you can get good margins out of the business. But margins have been impacted. And we think as the economy improves we're going to have an opportunity to increase margins again. And I think that's -- I know we've harped on it a little bit as a Company. But we think that we've executed incredibly well over the course of the last few years.

And we think we've done it in an awful environment, in an environment where business is shrinking, in an environment where there's been price pressure, and part of the story that we've been trying to sell is just think about what we're going to be able to accomplish when the market improves and it's really when we've got some winds behind our tails and pushing us forward. And I think that there's going to be substantial room for improvement in our business model.

So margins have been impacted. It's still good margin business. It's still a solid industry out there. We've seen some competitors fail, right? So I think the competitive landscape is changing. And I think things across the board are improving which is a very positive sign. So we feel great about what we've been able to accomplish considering the environment that we've been living in. And we think it's only going to get better.

That's very helpful. And do you sense that we're at the bottom for those margins?

I think we already passed the bottom. I think things are already getting better.

Okay. And that's great. Thanks very much.

And if you look at our numbers, right, we're down 140 basis points year-over-year on gross margin. When you look at our second quarter guidance, that gap begins to lessen. As you look at the back end of the year we're probably going to have some nicer comps from a margin perspective. So I think that even within our own company you're going to see margin comparisons improve as the year goes on, which I think supports what we're saying.

I can see that. I guess I'm just trying to figure out how much of it is mix versus an improving pricing environment.

Just to give that some numbers, John, last year we improved to 9.4% EBITDA margin. And the EBITDA margin implicit in our guidance is 10.4% to 10.6%.

Right.

So that tells you even in the sort of the soft markets that Jose talked about, we're still seeing margin expansion.

But you didn't have Precision for the full year of last year.

Right.

Okay.

Yep.

All right. Well, thank you, I appreciate it.

Thanks, John.

We'll take a followup question from Alex Rygiel from FBR Capital Markets.

Thanks. Real quick, Jose, was there any storm revenue in the quarter and could you quantify it?

Minimal. We had a little bit of storm revenue in the northeast on the distribution side of the business but not even worth mentioning.

Two other questions. Could the fourth quarter be stronger than the third quarter both revenue and EPS?

I doubt it. And it somewhat depends on weather late in the year, we're expecting to have our Pipeline business and Wireless business will have very strong Q4s. Our Renewable business might peak in Q3, but weather permitting it might boil into Q4. So I think there's a chance. I think that we're expecting those quarters as they've been in the last couple of years to be fairly similar. So I don't think you have a big ramp in Q4 but I think Q3 and Q4 are a lot steadier and a lot closer in size.

And could your revenue from natural gas be greater than wind in 2010?

Our revenue from our Pipeline business versus our Renewable business? Is that the question, Alex?

Yes.

I think that there's a lot of months left in the year. There's a possibility, I think, that they would be closer that they'd be closer to equal than any one being necessarily greater than the other. I think long-term Renewables has probably more potential, just based on where we stand in that industry. But it could go either way. There's some large projects out there and that needle could move either way.

Great. Thank you very much.

Thank you, Alex.

And we'll take our final question from Tahira Afzal, followup.

Hi. Just a couple of followups. Number one, to the extent possible, could you give us an idea of that 1100 megawatts in terms of profiles that you already have on your plate? Is it more oriented towards large developers and then is it possible to determine how much of that is backed up by PPAs?

I can tell you that we're probably working for six major customers that make up the bulk if not that entire number. It would be six major developers in the wind industry, some of which were on our top 10 list so I think you can kind of figure that out. I'd say the majority of the projects we're working on have PPAs. I know there's a couple that don't. But again, we're not always privy to that information. So we're out there, if we're asked to construct it and we feel the customer has credit we're going to construct it.

Got it. Okay. And Jose, one of the pushbacks I sometimes get is if you look across the feedback of the new (inaudible) coming in from the smaller developers, obviously they are still stressed. Is it fair to say that one of the reasons you're standing away, or you are relatively outperforming the general trend that might be out there on the wind side is because you're more aligned with the larger developers as well?

You know, I think that over the course of since we bought Wanzek I think we did an excellent job of reintroducing both Wanzek and MasTec to the developer community base, let's call it, to all the developers that are in the market. I think that those efforts have gone a long way in the improvement of the business and in our market share gains in that business. But I also feel that we're going to be able to see those same market share gains with smaller developers as they come back. We're just seeing it with the larger developers because that's who's working today. But I think we're going to do very well with both sub sets of customers. Although today the major customers are still our biggest customers and that will continue. But I do think you're going to see more wins from us from smaller developers who are out there building a couple projects or maybe even one project. So as that market comes back we're going to be a bigger player in that market than we traditionally were.

Got it. Okay. Thank you very much, Jose.

Thank you, Tahira.

That concludes the question and answer session today. At this time I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Well once again I'd like to thank all of you for participating on the call today and for your support. We look forward to speaking again on our second quarter call. Thank you.

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