MasTec Inc (MTZ) 2010 Q2 法說會逐字稿

Thank you. Good morning, everyone. Welcome to MasTec's second quarter earnings conference call. The following statements are 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 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 of the Company's expectations on the date of the initial broadcast of this conference call and the Company will make no effort to update these expectations based on subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in our press releases and filings with the Securities and Exchange Commission. Should one or more of these risks and uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may differ significantly from the 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 the comments to the most comparable GAAP financial measure can be found in our earnings release or on the investor relations section of the website located at mastec.com. With us today we have Jose Mas, our Chief Executive Officer, and Bob Campbell, our Executive Vice-President and Chief Financial Officer. The format will be opening remarks and analysis by Jose followed by a financial review by Bob. These discussions will be followed by a Q&A session and we expect the call to last approximately one hour. Jose?

Thank you, Marc. Good morning and welcome to MasTec's second quarter call. Today I will be reviewing our second quarter results and providing an outlook for the markets we serve. First some second quarter highlights.

Revenues for the quarter was $495 million, a 28% increase over the prior year quarter. EBITDA increased 29% to $46 million. Earnings per share were $0.18 versus our guidance of $0.15, and we generated organic growth of 11% in a very difficult environment. In summary, we exceeded our expectations for both revenue and profitability in the second quarter. Our diversity and expansion into a number of key end markets continues to drive our improved performance and growth profile. While we are very pleased with our financial performance, we are even more pleased with the success of our diversification and increased exposure to higher growth markets. These markets include wireless, renewable, pipeline, high voltage transmission line and industrial construction.

While current economic and regulatory conditions continue to have a negative short-term impact, we believe the long-term growth profile on these markets will be significant. We have clearly demonstrated our ability to grow organically in these markets despite a challenging economic climate and as the economy improves, we believe that your competitive position will allow us to expand that growth. As we look at the balance of the year we expect the second half to outperform the first half. We actually expect revenues growth in practically every one of our markets, led primarily by growth in wireless and pipeline construction. A key project will be our participation in the construction of the Ruby pipeline. The Ruby pipeline is a 680-mile 42-inch natural gas transmission pipeline with an initial capacity of up to 1.5 billion cubic feet per day that will traverse portions of four states.

Wyoming, Utah, Nevada and Oregon. Construction began on the pipeline July 31 and we are currently revising our work plan with our customer as we had expected to start this project in early July. While we do not believe the delay will affect our full year guidance, we are obviously now expecting significantly more revenues from this project in the fourth quarter versus the third quarter. For the full year, we are reaffirming our guidance. Based on our current work plans, we expect revenue to come in slightly above $2.1 billion and we are currently trending towards the lower end of our earnings guidance range.

In these estimates, we are assuming that some of the construction on the Ruby pipeline will slip into the first quarter of 2011. Now, I would like to cover some industry specifics. Communications revenues were $280 million, or 50% of revenue for the second quarter. Within communications, our installable home market performed very well. Revenue from your largest customer DirecTV was $127 million, up 10% from last year's second quarter. Second quarter revenues were higher than projected, Activity remains strong and we now expect double digit growth from this customer for the balance of the year. The Telco wireline maintenance business remains challenged. Revenue was down almost 15% year-over-year.

While we don't expect much improvement in 2010, we are beginning to see a number of opportunities coming from RFPs associated with broadband stimulus spending, and we expect that 2011 will be a better year as it relates to this market. Our wireless business continues to perform at a very high level. Revenues were almost double those of last year and up 60% sequentially over the first quarter. Again, we expect a strong second half and believe we will see solid growth in this market for years to come. We have invested and will continue to invest heavily in our self-performance capabilities. We feel we have a very competitive product offering in this market and are actively working at growing our customer base. Now, I would like to cover our utilities business which accounted for $206 million or 42% of revenues for the quarter. Let me cover electric distribution and transmission revenues first.

Both electric distribution and transmission revenues were down double digits over last year. Sequentially, electric distribution revenues were down slightly while transmission revenues were up. We continue to expect weakness in the electric distribution markets throughout 2010 with improvements starting in 2011. On the transmission side, we continue to work at increasing our capabilities and reach in this market.

In the pipeline construction market, our most recent acquisition Precision Pipeline accounted for 13% of revenues in the second quarter versus 21% of revenues in the first quarter. Precision has commenced mobilization on the Ruby project we discussed earlier and we expect their revenues to ramp up considerably in the second half of the year. The balance of the pipeline business saw solid double digit growth in the quarter. We are seeing a significant increase in opportunities related to (inaudible) and expect further growth in that market. Our renewables business is performing as expected with solid year-over-year and quarter over quarter growth, we will have a strong 2010. Our pipeline of wind project remains strong and we are actively working at building backlog for 2011.

As we look forward, we expect 2011 to be similar to 2010 based on legislative and regulatory uncertainty. We continue to believe that a national renewable portfolio standard will provide significant upside for the market. In the meantime, state renewal portfolio standards are driving this market. While the market is not expanding as rapidly as we would have hoped our competitive position is very strong. As it relates to solar, there are a number of projects and opportunities we are involved with. While we do not expect them all to materialize, we are confident that solar activity will have a positive impact on our 2011 performance.

Finally, in our industrial and power construction business, we are nearing completion on great river energy spiritwood 99-megawatt combined heat and power station. Our scope on the project has been increased to include startup and commission. We have invested heavily in augmenting our capabilities and added a number of key individuals to better serve this market. We are aggressively pursuing EPC projects related to combined cycle, biofuel, biomass, and power generation projects. We expect this to be an area of growth in 2011 and beyond. In summary, we are very pleased with our performance for the first half of the year.

We believe that our ability to grow organically during a very difficult period demonstrates our success at integrating our previous acquisitions and at creating a value added proposition for our customers. Again, 2010 will be an excellent year for MasTec. But more importantly the Company today is positioned to take advantage of what we think will be some fantastic opportunities in the future. I would now like to turn the call over to our CFO, Bob Campbell. Bob?

Thank you, Jose, and good morning. Good I'm going to cover three area. Second quarter financial results, guidance for the third quarter and the full year, and cash flow liquidity and our capital structure. First I will mention a few Q2 highlights and then drill down into the details. For the second quarter, my highlights are the second quarter was an excellent quarter with stronger revenue than we had anticipated and with incremental earnings commensurate with the higher revenue. Q2 revenue was up 28% and EBITDA was up 29% compared to last year.

MasTec had double digit Q2 organic revenue growth that was pretty broad based with a number of our markets performing well. Q2 revenue of $495 million was up $107 million versus last year. Our utilities or energy revenue was up 46% aided by the Precision Pipeline acquisition, and communications was up 23%, without any acquisitions. The Precision Pipeline acquisition certainly helped the overall growth rate, but we had double digit organic growth excluding the impact of Precision Pipeline. Our double digit organic growth for the quarter was led by wireless which almost doubled year-over-year. Plus, good growth in renewables and industrial construction and also good growth in our mid stream natural gas pipeline business and DirecTV was up 10%. Q2 gross margin as a percent of revenue increased to 15.7% for the quarter, compared to 15.4% a year ago. Q2 earnings before interest, taxes, depreciation, and amortization or EBITDA was $46 million, an increase of $10.3 million or 29% versus last year. EPS of $0.18 was above our earlier expectation of $0.15.

Year-over-year comparisons are complicated because of the dramatically higher book tax rate this year and also higher acquisition and tangibles amortization. I will walk you through the EPS details a little later. Now, for the Q2 details. Q2 revenue increased by $107 million or 28% year-over-year to $495 million. Increases in pipeline, wireless, renewables, industrial construction, and with DirecTV were partially offset by weakness in our wireline and electric utility distribution markets. While the precision pipeline, which closed last November, certainly helped our growth rate we did have double digit organic growth for the quarter with pretty broad-based growth.

I will talk about increases with specific customers a little later. Q2 gross profit margin increased to 15.7% from 15.4% last year reflecting increased productivity and also a better business mix. Since we we're carrying excess capacity in preparation for a stronger second half of the year, we were pleased with the margin expansion. Q2 depreciation and amortization expense of $14.2 million was up $3.5 million from Q2 last year, r primarily reflecting the growth in fixed assets in our pipeline business but another big driver was a million dollars increase in amortization expense for acquisition related intangible assets, also related to Precision Pipeline. Net interest expense for Q2 was $7.3 million compared to $5.8 million last year due to higher debt and lower interest income.

I will talk about our capital structure a little later. Q2 other expense includes a $400,000 impairment charge for some of our auction rate securities and a $300,000 charge for lease termination costs related to turning in excess equipment. As I mentioned earlier, Q2 EBITDA was up $10.3 million or 29% continuing our positive performance trend. However, Q2 EPS of $0.18 declined from the prior year's $0.25, primarily due to our book tax rate going from only 2% last year up to 41% this year, a transition we have been talking about for two years. The increase in book tax rate hurt the quarter for a negative $0.11. The book tax rate accrual remains mostly non cash because of our NOLs which I will talk about a little later.

We were also hurt in Q2 by higher depreciation and amortization, higher interest expense, and a higher share count mostly related to the if converted accounting treatment for our two convertible note issuances. MasTec management believes that currently EBITDA is the best measurement of our financial performance. That is until we had two comparative years with roughly the same book tax rate and until we burn off our remaining NOL and start to pay meaningful amounts of cash taxes. For the second quarter of 2010, the ten largest customers were DirecTV was 26% of total revenue, note that it is down from 30% of revenue a year ago. And that is in spite of our revenue with DirecTV growing 10% year over year. AT&T was 20% of total revenue. Our year-over-year AT&T revenue growth was 71%.

Our wireless revenue almost doubled for the quarter while wireline revenue dropped. Despite the Q2 and year-to-date revenue increases, we were up 75% year-to-date. Our work in revenue with AT&T is heavily back-end loaded, so we expect continued ramping of AT&T work, revenue, and earnings for the second half of the year. Talasman Energy was 5% of total energy. That is a pipeline customer. Spectra Energy, Edison Mission Energy and Duke Energy were each 4% of total revenue, that's a pipeline customer. Spectra, Edison Mission, and Duke are long-time windfarm customers. Great River Energy was 3% of total revenue. We are building a 99 megawatt combined heat and power plant for this customer. TPF2 East Texas Gathering and Ruby Pipeline, both natural gas pipeline customers, and Ibadrola, a wind customer, were each 2% of total revenue. The Ruby revenue is for mobilization only, since we did not start construction on Ruby in Q2. Regarding diversification.

Our top ten customers now include one satellite television customer, one telecom customer, four pipeline customers, three wind farm customers, and one traditional electric utility customer. Regarding concentration with DirecTV, the concentration peaked at 47% of total revenue in Q1 2008. In Q2 this year, it was down to 26% and for the full year it should be in the low to mid 20s. We expect DirecTV to drop below 20% of total revenue over time, as renewables, industrial construction, wireless and pipeline all grow faster than DirecTV. We believe that we have successfully addressed our DirecTV concentration issue. Today backlog is just under $2.2 billion, that is an 18 month backlog number.

The comparable number for Q2 a year ago was $1.7 billion and $2.1 billion last quarter. 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 for those contracts. Now, let me talk about our cash flow, liquidity, and our balance sheet. Net cash flow provided from operating activities was $28 million for the first half of the year, a and our June 30 liquidity was $183 million.

Our cash flow of operating activities this year was hampered by a $30 million year-to-date growth in accounts receivable and a $16 million year-to-date growth in inventory. Regarding accounts receivable, we did have a nice spike in revenue in the second quarter. Q2 revenue was $45 million higher than Q1 and that revenue rampup along with weaker Q2 DSOs hurt our cash flow. Our accounts receivable days sales outstanding or DSOs went from 60 days at year end, to a MasTec record low level of 50 days at the end of Q1, but then back up to 65 days at the end of Q2. The 50 day Q1 DSO was helped by unusual up front advance payments from customers and Q2 DSOs were a little higher than our current targets of 60 day DSOs, you will likely see going forward a little volatility in DSOs, due to either the positive or negative impact on big projects. Although today we believe that on average 60 days is good for us.

Most of the inventory rampup related to the wireless business, where we are have had explosive growth. As I mentioned, wireless revenue in Q2 almost doubled versus last year and the second half of this year will be higher than the first half, so there will likely be inventory increases. Also, year-to-date we had $20 million cash outflows for acquisitions, mostly contingent earn out payments. It is good news that our acquisition companies are doing well and that we now need to make contingent eastern out payments. Most of our agreements allow MasTec to pay earn outs in either stock or cash but we have elected to pay in cash given our high level of liquidity and your perception that our stock is very undervalued.

As we said in the past, we certainly prefer to pay a significant portion of the acquisition consideration based upon future bottom line performance, rather than paying everything up front and then hoping things work for the best. 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 will cover our 2010 book tax accrual rate which is dramatically higher than our actual cash taxes. Currently we have a federal tax NOL or net operating loss of about $85 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 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 be paid normally.

And then by 2011 we expect to be a normal full cash tax payer. Our tax position really helps our cash flow for 2010. Regarding capital spending, we have only spent $14 million year-to-date. Our 10-K had an estimate of $40 million to $49 million for the full year which was very, but at this point I would at the same time that CapEx will be more likely in the 30s for 2010 and it will likely be closer to $30 million than to $39 million. To summarize our cash flow characteristics, I would say this, EBITDA continues to grow very nicely. DSOs in the 60s are in good shape. CapEx estimated to be in the 30s this year is modest. Cash interest estimated at under $30 million is reasonable.

And our cash tax payments should be modest for 2010. Therefore, our cash flow should be very good against this year. Our liquidity has continued to improve with cash and availability under the Company's credit facility totally $183 million at quarter end compared to $160 million at December 31, 2009. In Q2, we used a little of our liquidity to fund the working capital growth that I mentioned earlier. Now, let me talk for a moment about our capital structure. As a quick capital structure summary, at quarter end we had $553 million in equity. $421 million of total debt. Only $352 million in net debt, that is 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 would like to note two things about our capital structure. First, we have no significant debt maturities until 2013, 2014 and 2017. 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 long before maturity. The convertible notes mature in 2014 and our senior notes mature in 2017. As I mentioned, our debt is very attractively priced. We currently play LIBOR plus 250 on the bank revolver but currently have no draws, only 4.425% on the two convertible notes and 7.5/8% on the senior notes.

My overview today of what we have been able to accomplish over the last several years is the same as I mentioned last quarter. We have been able to expand into a number of new markets with excellent growth potential, dramatically reduce the DirecTV concentration, all while maintaining good liquidity and a solid capital structure. Now let me cover Q3 guidance. We currently expect Q3 revenue of $550 million to $575 million. And EBITDA of $63 million with fully diluted EPS of $0.28. Q3 guidance reflects a 39% to 45% increase in revenue and a $24 million or 63% in EBITDA versus Q3 last year. Q3 EPS guidance of $0.28 compares to $0.27 last year. And as I noted for Q2, the dramatic increase in book tax rate has a big negative impact on EPS comparisons. The Q3 book tax rate last year was 2% and for this year we now expect 40.9% which has a negative impact of $0.17 per share for Q3, 2010.

And it is mostly non cash because of our NOLs. In addition, we will have the same negative year-over-year comparisons for higher depreciation and amortization and interest in a higher share count that I mentioned relative to our Q2 comparisons. 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 is revenue growth of 29% and EBITDA growth of $65 million to $70 million or 42% to 46%. 2010 GAAP 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 40.9% compared to 10.6% for 2009. The book tax rate increase is a $0.44 to $0.46 per share negative drag on 2010 GAAP earnings. As I have already noted our cash taxes for 2010 will be modest, so the tax accrual is mostly a non cash charge. In summary, we are off to a good start for the year. Q1 and Q2 were each a little better than our original expectations. We are encouraged by our Q2 double digit organic non acquisition growth and by the broad based revenue trends.

We expect a very strong second half of the year driven by second half improvements in pipeline, wireless, wind, industrial construction, and DirecTV. And we should have another terrific cash flow year. That concludes my remarks. Now, let me turn the call back to the conference operator for the Q&A session.

(Operator Instructions). We will take our first question today from Alex Rygiel, FBR Capital Markets.

Tank you, good morning, Jose and Bob. How are you today?

Good, Alex. Good morning.

A couple of questions. As it relates to backlog can you give us a little bit of color as to the profit margin that you believe is embedded in your backlog right now?

You know, Alex, I don't think it is much different than last quarter. Obviously, we have done a lot of pipeline work if backlog, especially since Ruby hadn't started at the time of quarter end, which is a little better margin so I would say that currently in backlog our margin is currently a little higher than it had historically been but probably not much different than they were in Q1. We will start working on some of the higher profit work in the back end of the year.

And your organic growth in the second quarter, double digits is outstanding in this environment. I know you don't want to make projections for 2011 yet but can you kind of give us a sense as to where your thinking is right now based on all the bidding opportunities across all of the businesses?

Alex, we said it last quarter and we said it again we think 2011 will be an excellent year. With the exception of maybe renewables around wind which I think, there is still a lot to be learned about what is going to happen in 2011 for wind, I don't think it can be any worse than 2010 but really understanding how much better than 2010 wind is going to be in 2011 I think is going drive some of the renewable stories although solar is going to play a bigger role in 2011 than it did in 2010. So, overall that unit should grow nicely. The rest of our businesses should start see an uptick in 2011.

When we look at energy maintenance business and when we look at Telco maintenance business which really struggled in 2010 we think both of those businesses begin recovering in 2011. Our wireless business will again have solid growth in 2011. We feel comfortable with the amount of pipeline work in the bidding process that we will have an opportunity at a minimum to keep at the levels of where we are this year in pipeline because we going to have a fantastic year, but potentially grow. We think the transmission business gets better in 2011. All in all, as we look at 2011, we are very encouraged with what we are seeing, and it is early on, but we are encourage.

Lastly, it has been a very hot start to the summer time and the summer continues to be very hot. Can you comment on how the high temperatures in the mid Atlantic and east coast and across the US, have affected some of the customers thinking as it relates to maintenance CapEx, whether or not its Electrogold, TND, or the wind market, can you comment on how the temperatures around the summer time have affected your customers thinking.

Unfortunately, I think that some of our customers are still being driven by regulatory policy and I think one of the issues that we have is at some point there is going to have to be broader based energy policy in place that is going drive a lot of our businesses. I think we saw some of that pressure go away in 2010 because we actually had a slowdown in 2009 for energy consumption. But we have got serious issues in this country as we look at our energy needs and how we are going to address them. I think whether it is the warm temperatures or increase in energy demand is, I think that is going to push people to act on this quicker, which I think we positioned ourselves great for. Whether it is transmission or renewables or natural gas, I think they are all going to be significant players in our overall energy policy and I think we just need action and obviously whether it is the economy or whether it is weather driven, we need something that is going create action out there. Warm temperatures also lead to more intensive hurricane seasons, which we haven't had in the last couple of years but there is a lot of talk out there about this hurricane season being a lot more active than in a couple years past. We'll see what happens.

That is perfect. Thank you, gentlemen. Great quarter.

Thank you, Alex.

Our next question will come from Tahira Afzal of KeyBanc.

Good morning, gentlemen. Nice quarter. Congratulations.

Thank you.

Just wanted to start off with something you briefly touched on, and I'm not sure I heard it correctly, Jose. Did you say that you might be looking at the lower end of the fuel year guidance now and would it be fair to say that is all predicated and Ruby if that is the case?

The answer is yes, yes to both questions. It is predicated on Ruby from a revenues perspective, we are doing great as a company. Obviously Ruby is a project that had a little higher margins than our typical business, so what we also said in that statement was we are now expecting some of that Ruby business to slip into 2011, which I think is going to slightly affect our overall margins which kind of trends us to thinking that we are going to be more into that lower end of the earnings range guidance than the higher end. That could change quickly with what happens with Ruby and we are currently working on our work plan with our customer. We have just gotten the green light, there is in service dates that have to be met so if Ruby decides to accelerate that or stick to original schedules and then this conversation would be totally different.

Got it.

But not knowing that exactly we felt we wanted to be a little more conservative in estimating that some of that work is going to slip into 2011.

And is that why you officially gapped your range still is that to reflect that there is still uncertainty around Ruby, or did it also really reflect the fact that some of our other markets have been coming back a little more strongly than you thought?

Well, I think it is both, Tahira. Our markets are, some of our markets are performing a lot stronger than we had anticipated. We will see if that continues for the balance of the year. We think it will. And again we are feeling that we going to beat that 21. We will be slightly above the $2.1 billion in full year revenues, and obviously that leads to a significant ramp in Q3 and Q4 and really our earnings are going to be generated by the increased revenue and where it is coming from. If you think about our revenue growth as a business, if you take our gross profit margin will substantially fall all the way down to pretax income because the SG&A and depreciation and amortization and interest expense are going to be relatively flat, so every dollar of increased in revenues is going to have a pretty significant margin associated with it compared to our typical margins. Really this is a question of how much revenue can we ultimately generate in Q3 and Q4. How much better than the slightly above 2.1 can we get, and that is really going to drive both profit margins and where we end up from an EPS basis on full year.

Okay, great. And I have got one more question, Jose and then I will drop back into the queue. In terms of backlog mix where is it now in terms of the end market versus your, what it was let's say quarter before? And as it builds up do you see it then moving more towards solar and perhaps natural gas and less for renewables mix as you progress into 2011?

Well, you mentioned solar, and solar would fall into our renewables category so, we do think that renewables backlog is going to continue to grow. It is really what is driving our business and when you look at wireless renewables, natural gas, those are all areas that we expect our backlog to grow over time. I think that, unfortunately, in some of those businesses backlog is going to be a little bit bumpy. And it is all going to be around the bidding cycles and when work gets awarded so you may see some of those businesses where projects get worked off very quickly, especially in renewables and in natural gas and you are going to have periods where your backlog is a little bit inflated because you are starting projects and then work some of this off and then work to pick that up. Over time there is a lot of opportunities out there. We are looking at a lot of big jobs and we feel pretty comfortable that we are going to continue to work hard at building our backlog.

Thank you, Jose. I'm just going to jump back in the queue then.

Next up we will hear from Dan Settleson, Morgan Stanley.

Thanks for taking the question. Any details you can provide on the wind backlog, how many megawatts you might find in backlog and how much has been installed this year and what your goal is for the full year in terms of megawatts?

Our goal hasn't changed. We are hoping to work on 1300 to 1400 megawatts and we think we are well on our way of doing that. The quarter, actually since our last call, because we were awarded some stuff early in the quarter but we talked about this on the last call, we have been verbally awarded some projects that we haven't signed contracts in that we are in current negotiations. Backlog of the pipeline remains very strong. We are looking at somewhere around 1500 megawatts of either negotiations or fees that are ongoing. So again, we feel very comfortable with 2010, and really our focus right now is on beginning to build backlog for 2011. We think that happens late in this quarter, early in the fourth quarter and our goal that we talked about earlier this year and continue to believe is our goal is to go into 2011 with as much or more backlog as we did into 2010.

Great, that's good to hear. Could you provide an update on what you are hearing from Verizon and AT&T on the 4G front? Are you hearing anything about their rollout schedules and when that might translate into work beginning for MasTec?

Our expectation all along has been we expect work to start in 2011. We have seen a little bit of work that is going to fall in late this year, it's not going to be significant. But there are a lot of plannings going on for 2011 relative to 4G both at AT&T and Verizon. Verizon is probably slightly ahead on some of their initial market tests for 4G. I think they are going to have somewhere around 25 to 30 markets live by the end of the year, and I think on their last call they publicly said they wanted to have all of their markets on LTE or 4G by the end of 2013. We are going to see a rapid ramp in 2011, 2012 and 2013 as it relates to LTE or 4G and we are going to be a big beneficiary of that.

One last quick one for me. On Ruby, do you have any feel for how much a delayed start could create overtime work? I guess it depends on how quickly they want to finish. Assuming there is overtime, how does that translate into higher margins? Can you give us any feel for that?

Vince, we are in the middle of actually having those discussions with the customer so I think that there could very well be both Scope Creek and potentially obviously as we work more overtime that is going to increase revenues but we would probably be in a better position to talk about that on our next call.

Great. Good job on the quarter. Thanks.

Thank you, Vince.

Our next question is from Liam Burke, Janney, Montgomery, Scott.

Good morning, thank you. Jose, if I look at your first quarter, typically that is seasonally low based on the weather and its effect on construction. Utility revenue in the second quarter was down sequentially from the first. Is there some reason for, I mean obviously there is a reason, can you give us some help on that?

Yeah, it was down slightly. And I think, it was somewhat unexpected. We actually thought we were, some of our, and it was mix, some customers went up with some going down. We probably saw more weakness on the underground side of the business than we did on the overhead side of the business and really nothing in general to point to or nothing specific to point to. It was pretty much just overall general weakness.

And Bob, with the lower CapEx you should have pretty strong free cash flow the second half of the year. Are you just going to continue to accrue a cash balance or do you have any thoughts as to what you could do with that cash?

You know, Liam, I don't think we are prepared to say what our plans are. I would like to enjoy it for a day or two at least.

Okay, I'm sorry.

We are going to generate cash flow and we get a lot of questions about as the cash balances build, what are we going to do with it. And this is sort of a non answer answer. We will do the right thing and as they build we will make decisions about it at that time. But we are going to continue to enjoy, we believe, very, very nice growth and the first use of the cash is just going to be for our internal growth.

Great, thank you.

Okay.

Up next is Mickey Schleien of Ladenburg Thalman.

Good morning, Jose and Bob.

Good morning, Mickey.

Jose, your guidance implies a pretty healthy or very healthy improvement in the EBITDA margin from the second quarter to the third quarter into the fourth quarter. Could you give us a sense of the expectations for your revenue mix that supports that improvement in the margin?

You know, again, it is really driven by revenues. So if you think about it a little bit differently and you say, we did roughly $500 million in revenue in the second quarter, we have been pretty vocal that we think that at its full go Ruby is going to be somewhere around a $50 million a month project, so let's call a full quarter of debt at $150. Back a little out for other work we potentially would have done with the same resources. We said all year that our wireless business is going to be back-end loaded and we still expect 60% or so of the revenues from that business to come in the second half and almost 50% growth in the second half versus the first half of the year. When you start getting that kind of revenue growth and just look at it from a gross profit margin because the one thing that EBITDA doesn't drive below the gross profit is SG&A, and our SG&A is going to be pretty stable for the balance of the year. The balance of that both affects your pretax income and your EBITDA margin. So that incremental growth at that gross margin level and we will probably see a slight uptick in gross margin profits as utilization is used, right, so as our utilization counts go up our gross margin will improve and then you drive the gross margins down to both the EBITDA line and the pretax income line, it really becomes pretty evident that it is all about us recognizing that revenue. And if we can continue to perform that revenue at the gross margins, even at second quarter levels, slightly improved in the third and fourth quarter level that drops down and it affects pretty dramatically both EBITDA and pretax income margins.

Thank you, Jose.

Next from BB&T Capital Markets is Adam Thalhimer.

Good morning, guys.

Good morning, Adam.

Congratulations on a great quarter.

Thank you.

Maybe I missed it, but what was total backlog at the end of Q2?

Just under $2.2 billion.

And, Jose, you have two big contracts that are obviously performing very well. The contract with DirecTV and AT&T Wireless. Can you remind us when those mature and maybe give us some commentary around how happy your customers are with you for those two contracts and what the renegotiation process might look like?

Sure. First, with both DirecTV and AT&T they have been customers for a very long time. I would say that our relationship with both of those customers is excellent. I think we are performing for both at a very high level. I think they are both extremely pleased with our service offerings and what we have done for them not this year but in years past. Our DirecTV contract, we have got a number of years left. It has been a contract where we have been able to renegotiate it time and time again and extend them well beyond their termination points and we think we will do the same thing again. I think we have three years left on that contract. And on the AT&T Wireless contract, I think there is another 18 months or 24 months left on that contract and again there is some renewal provisions in there that we think we will both exercise. So we are pretty comfortable that we are in early stages of both of those contracts from a renewal perspective and again we feel good with the service that we are providing them and we think the relationship is excellent.

Thanks. Great quarter.

Thanks.

William Bremer of Maxim Group is next.

Good morning, gentlemen.

Good morning.

Very nice quarter.

Thank you.

Most of my questions have been answered but the last two questions, but can you provide us a little more color on the Ruby project, okay? 680 miles. My estimates are that you have landed a little more than 215 miles of this. Can you use a little more color in terms of the execution, the terrain that you will be utilizing? You mentioned, Jose, that G&A is going to remain stable pretty much for the remaining part of the year. You know, that is including anticipating this project because there has been a lot of capacity that has been pulled through. Just a little more color on the Ruby. I appreciate it.

Okay, at the peak we will probably have somewhere around 1200 employees on the project. We are working predominantly in the state of Nevada and again we expect a construction schedule of, at this point, 6, 7 months. Really the additional resources that we need to hire are predominantly from a field perspective. It is a union job, so we have really got most of the people identified that we are going to be bringing on to the job. We just need to execute on that. From an SG&A perspective there is very little that gets added on to the project, which is why the gross margin has a little effect on EBITDA and pretax margins. For us it is a big project. It is a similar project to many others that we have done so we feel very comfortable around the execution risk. It is a cost reimbursable contract where we are basically getting reimbursed for the cost at pre agreed levels with our customer. And I don't know there is much else I can say about it.

Okay. I appreciate it. Thank you. Great quarter.

Thanks.

And your next question today comes from Veny Aleksandrov with Pritchard Capital Partners.

Good morning.

Good morning, Veny.

I have a couple of questions. My first one is on the pipeline business. The demand that you are seeing right now which basins and which area is it coming from other than the Ruby, of course, the Ruby project of course, and how big are the pipelines that you are looking at? Can you give us some more details?

Sure. We are very active currently in both the Texas markets and in a couple of the northeast markets. We won a number of projects over the last four or five months ranging anywhere in size from $5 million to $50 million. There are a number of projects, there is a lot of bid activity. So again, we have built both within precision and within our legacy pipeline business, shale work has dramatically increased on a year-over-year basis. We expect that trend to not only continue but accelerate. We think that the shale work will be a larger percentage of what we do in 2011, just based on the sheer growth of it. And again, we think we are in a great position in both of those markets. We are actively pursuing expanding into some of the other shale plays not in those two geographies, but currently the predominant nature of our work is happening in those two geographies on shale-related work.

Thank you. And my next question is on the revenue mix. I remember that your internal goal was 50/50 communication communication segment outperformed this quarter. AT&T revenue is expected to increase. Should we expect the bigger parts of the revenues from 2010 to come through communications through the pipeline is (inaudible).

Couple of things related to that. I think, A, we probably didn't expect the kind of growth we were going to see in the communications side of the business. That has been a pleasant and positive surprise. We really haven't guided double digit revenue growth for DirecTV in years, so to be able to say that we expect double digit growth with that customer for the balance of the year puts us at a different place than we have been in at least in the last two or three years. The wireless business is performing well ahead of expectations again so both of those are driving a lot of strength into the communications business. But as you look at the big revenue growth for the balance of the year, it is really being driven by renewables and the pipeline business which falls into the utility sector. So you are going to see the mix between communications and utility balance out a little bit more, and I think we probably saw a high water mark for communications in Q2.

Thank you.

Thanks, Veny.

Our next question comes from John Rogers, D.A. Davidson.

This is Tristan in for John Rogers.

Hi, Tristan.

Just looking at Q3 and Q4 and when you look at just the back-end weighted earnings, is that just entirely a function of Ruby, the timing on Ruby and the delays that we saw earlier? Or do you have expectations of other projects or anything else going on that would make it more back-end weighted towards Q4 and possibly more into Q1 of next year?

Well, I guess to broadly answer the question, if you look at our company for many years, right, go back three, four, five years you are going to see that we are always second half loaded.

Right.

And it is not only a Ruby issue, it is multiple number of our different businesses have stronger second halfs than they have first halfs. So, if you start with DirecTV, right, DirecTV is driven by the NFL Sunday Ticket package which is a third quarter event. Business is very brisk during the holiday season of both Thanksgiving and Christmas and the New Year drives a lot of business for DirecTV. So, we have always seen strength in that business in Q3 and Q4, both in years of significant growth and years where we have grown the business as much, so with them we expect business to pick up the second half of the year, more so than it usually does. Within our utilities maintenance business, both electric and power line we tend to have stronger third and fourth quarters than we to first half of the year. We will see it this year in the pipeline business more specifically related to projects. Historically it has happened in the renewable business because of weather patterns in the first quarter, the second half tends to be greater than the first half of the year. One of the comments we made earlier in our script was we expect practically every one of our markets to increase revenues the second half of the year versus the first half, so there is no question that Ruby is playing a role and it is definitely playing a role on us moving some of those revenues from the third quarter or the fourth quarter, but we expect strength across all of our businesses in the back end of the year versus the first half.

Do you expect going forward fourth quarter, just as you look at your business, fourth quarter to be the stronger quarter, stronger than Q3 just generally speaking?

Generally we would say that we expect it to be the third quarter. And again, that is going to be somewhat dependent on whether you are working on a very large project. As solar continues to grow or as some of these large EPC contracts hopefully we make some progress toward, again there may be circumstances that move a particular quarter higher than another. But when we look at our business broadly, we would tend to say that the third quarter is our strongest quarter across all of our business segments.

Okay. Thank you, guys.

Thanks.

Our final question today will come from Frank Fiske, Pilot.

Hi, good morning. Thanks for taking my call. Nice quarter. I had a question. So as we look at Ruby, and relook out to 2011, there should be $50 million to $100 million still left over from Ruby, is that kind of the run rate once it is to be done with?

And again, you know, at this point our numbers are estimated.

Yeah, sure.

Based on the fact that we are currently working through our work plan, but that is probably an appropriate range.

For Precision, I think you gave revenue guidance around 300 or so was kind of the estimate if I believe, if I'm not incorrect for this year. What other work is Precision doing besides Ruby because that would seem to be almost all Ruby?

Well, if you follow our transcripts for the first two quarters, they performed about $160 million in work year-to-date with very, very little associated with Ruby. So, to your point, probably they are going to have a much better year than what we had originally guided to or expected to. So, Precision will perform better than the $300 million that we laid out in 2009.

Okay, great. Thank you.

And at this time, I will turn the conference back over to our speakers for any additional or closing remarks.

Again, we want to thank all of you that have supported us during the year and we appreciate you participating in today's call and we look forward to speaking again on our third quarter call. Thank you.

Ladies and gentlemen, that does conclude today's conference. We would like to thank you all for your participation.