MasTec Inc (MTZ) 2010 Q3 法說會逐字稿

Welcome to MasTech's third quarter 2010 Earnings conference call, initially broadcast on November 4, 2010. Let me remind participants that today's call is being recorded. At this time, I'd like to turn the call over to Mark Lewis, MasTech's Vice President of Investor Relations. Mark?

Thank you, Kevin, and good morning, everyone. Welcome to MasTech's third 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 might make certain statements that are forward-looking such as statements regarding MasTech's future results, plans, and anticipated trends in the industries where we operate. These forward-looking statements are the company's expectations on the day of the initial broadcast of this conference call, and the company will make no effort to update these expectations, based on subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in our press releases and filings with the SEC.

Should one or more of these risks or uncertainties materialize, or should any of our underlying assumptions proved incorrect, actual results may differ significantly from results expressed or implied in these communications. In addition, we may use certain non-GAAP financial measures in this conference call. A reconciliation of any non-GAAP financial measures, not reconciled in the comments to the most comparable GAAP financial measures, can be found in our earnings press release or on the Investor Relations section of our website, located at MasTech.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 of the call will be open remarks and analysis from Jose, followed by financial review from Bob. These discussions will be followed by Q&A period and we expect the call to last about 20 minutes. We have a lot of great things to talk about today, so I will now turn the call over to Jose. Jose?

Thank you, Mark. Good morning and welcome to MasTech's third quarter call. Today I will be revealing third-quarter results and providing my outlook for the markets we serve. Revenue for the quarter was $632 million, a 59% increase over the prior year's quarter, and up 28% sequentially. EBITDA increased to $73 million, an 88% increase over the prior year's third quarter. Net income increased to $30 million, a 39% increase over the prior year's third quarter.

Gross margins increased to 16.4%, and improvement of 80 basis-points year-over-year, and 70 basis points sequentially. We achieved pretax margins of 8% versus 5.6% in last year's third quarter, and 5% in the previous quarter. Cash flow from operations was $72.4 million, a 128% increase from the previous third quarter. Our cash balance has nearly doubled. Earnings per share was $0.35 for the quarter, versus $0.27 in last year's third quarter, a 30% increase.

Finally, organic growth accounted for 39% of the revenue increase driven by strong year-over-year growth in our wireless, transmission substation, natural gas, renewable, and installable home markets. In summary, we had a fantastic quarter. We executed at a very high level, dramatically improved a number of key financial metrics, and more importantly, we continue to position the company as a leader in our markets with substantial opportunities for future growth.

While our results speak for themselves, I would like to emphasize that these results were achieved during a difficult market and competitive landscape. We believe that the diverse markets we serve are improving, and that over time we will benefit further from the supply demand curve of our business. While the precision pipeline acquisition had a positive effect on our results, our third-quarter success was, in large part, driven by organic growth.

Pre-acquisition, we either doubled, or nearly doubled, the work we did for our wireless, central office, transmission, and natural gas customers. Work related to our installable home and renewable customers grew by over 20% on a year-over-year basis. Our success in the quarter was driven by solid performance, almost across the board, and despite a slower ramp on the construction of the Ruby Pipeline. If you recall, earlier this year, we expected substantially all of the revenue from the Ruby Pipeline project to be divided between the 3rd and 4th quarter of 2010.

While we generated approximately $40 million in revenue associated with the Ruby Pipeline in the third quarter, the project did not fully ramp up until October. We now expect the majority of revenues from this project to be recognized in the fourth quarter of 2010, and the first quarter of 2011. Before I cover some industry specifics, I'd like to once again comment on the strength of our diversity.

MasTech today is a very different company than that of a few years ago. We are now positioned to participate and compete in what we believe will be some of the most opportunistic markets in our economy. As we look ahead, we expect to be an active participant in deploying the infrastructure that ultimately becomes our country's energy independence strategy. By participating in the natural gas, wind, solar, biomass, transmission, and power generation markets, we will be an active player in the energy sector. Coupled with the opportunities before us in wireless and broadband, MasTech has never been better positioned.

Now I would like to cover some industry specifics. Our communications revenues were $348 million for the third quarter of 2010, compared with $256 million last year, and $280 million last quarter. Within communication, our revenue from DirecTV was approximately $156 million, a 28% year-over-year increase and a 23% sequential increase. We expect strong year-over-year growth for the balance of the year.

We also recently extended our contract with DirecTV for an additional four years, through late 2014. While the wireline markets remain challenged, we are seeing significant opportunities related to the broadband stimulus spend. We have been awarded a number of projects and are currently bidding or negotiating on a number of other opportunities. We believe that the increased level of activity in this market will lead to growth in 2011 for the first time in a couple years.

Our wireless business continues to perform and experience a high level of growth. Revenues were up dramatically, both year-over-year and sequentially. We continue working hard at both growing our existing customer base, as well as developing relationships with new customers. We expect this market to continue to provide opportunities for growth for our company, for the foreseeable future.

Now I would like to cover our utilities business. Utility revenue was $275 million for the third quarter of 2010 versus $126 million last year, and $206 million last quarter. The growth was driven by our acquisition of precision, the strength of our renewable business, our transmission business, and significant growth in our legacy pipeline business. Our distribution was up sequentially, but down year-over-year. While significant improvement is not expected in the short-term, we believe this market has stabilized.

As it relates to transmission, we had a very good quarter. We have spent a considerable amount of time and money increasing our presence in this market, and it is beginning to pay off. There are a number of opportunities in this market, and we feel we continue to make progress in making ourselves a more significant player.

Our pipeline construction revenues significantly exceeded expectations. Our most recent acquisition, precision pipeline, accounted for just under 13% of revenues, a similar number to that in the second quarter, while total pipeline construction revenues were just over 20%. This is in spite of the delay in the ramp-up of the Ruby Pipeline.

We have a very diverse pipeline customer base with significant exposure to a number of sales across the country. Our ability to win and book work associated with Shale activity was one of the major drivers that lead us to exceed our prior guidance in both revenues and earnings. Our renewable business also saw significant year-over-year growth.

Our wind business continued as expected, and since our last call, we have been awarded 40 wind projects. Bid activity remains strong, and despite a difficult market, we expect 2011 to be relatively flat as it relates to wind. We do, however, expect to see growth in both the solar and biomass markets.

We continue to believe that solar represents a large target market for MasTech, and we have a number of opportunities we are currently working. About a month ago, MasTech was selected as the EPC contractor on a roughly $300 million waste cellulose sick ethanol conversion facility. We are excited about our involvement in this project, and while we have not yet included it in our backlog, we are hopeful to start this project in early 2011. This is an important project, in that it shows the breadth of services that MasTech can now offer. We are hopeful that we can compete and win similar jobs in both size and scale, irrespective of technology. Power generation, solar, and biomass, all present significant growth opportunities for MasTech.

In closing, we are very pleased with our performance in 2010. We have a great team, and the men and women of MasTech should be proud of what we have accomplished. With that said, we are committed to continue to deliver results, and seize the opportunities ahead of us. I would now like to turn the call over to our CFO, Bob Campbell. Bob?

Thank you, Jose, and good morning. Today I am going to cover three areas; third-quarter financial results, an increase in full-year guidance, and cash flow liquidity and our capital structure. For the third quarter, we had terrific results for just about anything worth measuring. Therefore, I have a pretty long list of Q3 highlights.

Q3 revenue was up $235 million, or 49%(Sic-see press release) versus last year. Revenue of $632 million was a new quarterly record. As Jose mentioned, we had delays in both the start-up and the full ramp-up of Ruby. Therefore, it only contributed $41 million in Q3, which I think points to how strong and broad-based our other revenue growth was for the quarter.

We've been saying all year that 2010 was very back-end loaded, driven by customer workload and projects, and obviously that is exactly what has happened. Q3 organic revenue growth, without the impact of the Precision Acquisition, was up 39%. Let me say two things about our 39% organic growth. First, it represents a partial payback of our investment in business development capabilities. As we have mentioned in the past, we have been beefing up and investing in our business development area, in order to grow and diversify our customer base.

Second, the organic growth was very broad-based. We had excellent and double-digit growth from wireless, midstream natural gas pipeline, renewables installed in the home, which is DirecTV, and from the electrical transmission and substation business. Q3 EBITDA was up 88% versus Q3 year ago, and it was gratifying to see it grow at a much higher rate than our revenue. In dollars, EBITDA was $73 million compared to $39 million a year ago, which is also a new quarterly record. We said that this year would be heavily back-end loaded, and the $73 million of EBITDA for Q3 compares to $80 million for the entire first half of the year.

Q3 EBITDA margin was 11.5% compared to 9.7% a year ago, and Q3 was our best margin quarter since 2000. EPS of $0.35 per diluted share was well above our earlier expectation of $0.28, and ahead of last year's $0.27. Year-over-year EPS comparisons are complicated, because of a dramatically higher book tax rate this year. I will walk you through the EPS details little later.

Q3 cash flow from operations was $72 million, and our liquidity grew to $237 million at the end of the quarter. We are raising 2010 guidance to $2.22 billion of revenue, and $230 million per EBITDA. That's a 37% year-over-year revenue increase, and a 50% increase in EBITDA. Finally, we are having a terrific year by all measurements, in spite of the mediocre economy. Now for the Q3 details.

Q3 revenue increased by $235 million or 59% year-over-year, up to $632 million for new quarterly record. Double-digit increases in pipeline, wireless, renewables installed in the home, which is DirecTV, and transmission substations were partially offset by continued weakness in our wireline and electrical utility distribution markets. While the Precision Pipeline Acquisition certainly helped our 59% growth rate, we did have 39% organic growth for the quarter, which was pretty broad-based growth. I will talk about increases with specific customers a little later.

Q3 gross profit margin increased to 16.4% from 15.6% last year, reflecting increased productivity, and also a better business mix. Q3 depreciation and amortization expense of $15 million was up $4 million from Q3 last year, reflecting primarily the growth in fixed assets in our Pipeline business. But another big driver was a $1.3 million increase in amortization expense for acquisition-related intangible assets also related to Precision Pipeline.

Depreciation and amortization as a percent of revenue dropped from 2.7% percent down to 2.3%. Net interest expense for Q3 was $7.3 million compared to $5.8 million last year, due to higher average debt. But as a percent of revenue, it was dropped from 1.5% down to 1.1%. I will talk about our capital structure a little later.

Our G&A expense was $31 million compared to $24 million a year ago. The largest part of the increase was the bonus expense related to much higher earnings, followed by increases in payroll and fringe to handle the growth. As a percent of revenue, G&A dropped from 6% down to 4.9%, and that's our lowest G&A percentage ever. As I mentioned earlier, Q3 EBITDA was $73 million, which is a $34 million or 88% increase compared to Q3 a year ago, and our best quarter ever.

Q3 EPS of $0.35 increase by $0.08 from last year's $0.27, despite our book tax rate going from only 2.3% last year up to 40.8% this year. That is a transition we have been talking about for two years. The increase in book tax rate hurt the quarter for a negative $0.22. The book tax rate of growth remains most non- cash because of our NOLs, which I will talk about later. We were also heard in Q3 by higher depreciation and return edition, higher interest expense, and a higher share count, mostly related to the if-converted accounting treatment for our two convertible notes.

Management believes that EBITDA remains the best measurement of our 2010 financial performance. That is until we have two compared to the years with roughly the same book tax rate, and until we burn off our remaining NOL, and then have book taxes and cash taxes that are roughly comparable.

For the third quarter of 2010, the 10 largest customers were DirecTV, was 25% of total revenue, please note that it is down from 31% of revenue last year, and that's in spite of our 28% revenue growth with DirecTV in Q3. AT&T was 22% of total revenue. Our Q3 year-over-year growth was 86%, which was driven by wireless growth. Ruby pipeline was 6% of revenue. The percentage is much lower than we had expected due to delays in both the startup and a full ramp-up of Ruby. Ruby is a large El Paso corporation project, and are part of it is over 250 miles through Nevada. TPF East Texas Gathering was 5% of revenue. That's a pipeline customer.

Edison Mission Energy was 4% of total revenue. That's a wind farm customer. Nexterra Energy and Talisman energy were each 3% of total revenue, Nexterra is a wind farm customer, and Talisman is a pipeline customer. Duke Energy, Energy Transfer Company, and Iberdrola Renewable Energy USA were each 2% of total revenue. Duke and Iberdrola are wind farm customers, and energy transfer is a pipeline customer. Regarding diversification, our top 10 customers now include one satellite television customer, one telecom customer, four pipeline customers, and four wind farm customers.

Regarding concentration with DirecTV, the concentration peaked at 47% of total revenue in Q1 2008. In Q3 this year, the revenue concentration was down to 25%, in spite of 28% year-over-year DirecTV growth. We believe that we have successfully addressed our DirecTV concentration issue. Today backlog is $2.3 billion, that's an 18 month backlog number. The comparable number for Q3 a year ago was $1.8 billion and $2.2 billion last quarter.

We have not included in our backlog a large ethanol plant project that one of our customers recently announced because some of the financing is not yet finalized. The size of the project, which is the EPC project, is approximately $300 million. Remember that because 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. Net cash flow provided by operating activities was $101 million for the first nine months of the year, and our September 30 liquidity was $237 million. A year ago, cash flow from operations was $86 million, and liquidity was $183 million. We find liquidity as unrestricted cash, plus availability on our bank revolver.

The biggest drag in our cash flow from operations is growth in accounts receivable and inventory. However, the growth in AR and inventory is just part of the price of enjoying 40% revenue growth for the first nine months of the year. Regarding an Accounts Receivable, our Q3 Days Sales Outstanding, or DSOs, were 63 days, as compared to 65 days last quarter, and 60 days at year end.

Our current DSO goal is 60 days, which I think is a pretty tough goal, but worth pursuing, since every day of DSO is worth $7 million in cash to us. You'll likely see, going forward, a little volatility in DSOs, due to either the positive or negative impact of big projects with different payment patterns. Most of the inventory ramp-up is related to our wireless business where we are just having explosive growth.

Also year-to-date, we have $34 million in cash outflows for Acquisition earn-out payments. It is good news that our acquisition companies are doing extremely well, and that we now need to make some earn-out payments. Most of our agreements allow MasTech to pay earn-outs in either stock or cash, but we have elected to pay in cash given our high level of liquidity, and our perception that our stock is extremely undervalued. As a part of our Acquisition Risk Management Approach, we certainly prefer to pay a significant portion of our acquisition consideration on a contingent basis, dependent upon future earnings performance. We believe that our approach is more conservative in paying more of the purchase price up front, and then taking a larger return on investment risk.

Our cash flow continues to benefit from our 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 net operating loss, or NOL, of about $41 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 fourth quarter of 2010, so we expect to pay some cash taxes on earnings for 2010. But far less than what would normally be paid. 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 capitol spending, we have only spent $23 million year-to-date. Our 10 K. had an estimate of $40 million to $49 million for the full year, which was very conservative. But at this point, I would estimate that CapEx would be more likely to be in the $30 million range for 2010.

To summarize our cash flow characteristics, I would say this. EBITDA continues to grow nicely. It is up 49% year-to-date. DSOs in the 60s are in good shape. CapEx of about $30 million 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 flows should be very good again this year.

Now let me talk for a moment about our capital structure. As a quick capital structure summary, at quarter end, we have $585 million in equity. $418 million of total debt, only $298 million in net debt, that's net of cash. We expect about $230 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 had no significant debt maturities until 13, 14, and 17. Second, all of our debt has attracted interest rates. To give you a little more detail, our bank line matures in 2013, but of course the 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.

Our bank revolver interest rate drops on December 1, down to LIBOR plus 2.25%, although we currently have no draws on the Revolver. We pay only 4% and 4.25% on our two convertible notes, and we pay 7.625% on our senior notes. My overview today of what we have been able to accomplish over the last several years is the same as I've mentioned before. We have been able to expand into a number of new markets with excellent growth potential. Grow and diversify our customer base, dramatically reduce our DirecTV concentration, all while maintaining good liquidity in a solid capital structure.

We are raising 2010 full-year guidance for revenue and earnings to reflect the impact of our strong Q3. We are raising revenue guidance from $2.1 billion up to $2.22 billion, and that compares to $1.6 billion last year. We are raising 2010 EBITDA guidance from $218 million to $223 million up to $230 million. That compares to $153 million last year. We are raising 2010 fully diluted EPS guidance from $0.92 to $0.95, up to $0.99. And that compares to $0.90 last year.

Our revenue guidance reflects a 37% increase, and our EBITDA guidance reflects a 50% increase. 2010 EPS of $0.99 is a much much smaller increase than for EBITDA, because of the dramatic increase in the booked tax rate for 2010. Our book tax rate for 2010 is 40.9%, compared to only 10.6% for 2009. And the impact of the book tax increase is $0.48 per share, negative drag on 2010 GAAP earnings. As I've already noted, our cash taxes will be modest for 2010, so the book tax rate accrual is mostly a non-cash charge.

Now let me make three comments about 2010. First, we've been saying all year that our earnings would be very back-end loaded than the back-end loading was being driven by customer workload and project timing. That is exactly how 2010 has unfolded. I don't think being a little lumpy is bad if it is driven by our change in business mix, and in exchange results in higher earnings and higher margins. Higher earnings and margins potential is what we think we have accomplished with our transformed portfolio of businesses.

Second, we have been able to have an outstanding year and raise guidance in spite of delays with the Ruby Pipeline project. When we gave our original guidance for the year, we expected to complete substantially all of Ruby in 2010. Third, we could actually do much better than what we have accomplished in 2010. We have been in a mediocre economy all year, and we can do far better than 2010 in a strong economy. 2010 is certainly an outstanding year, but we had underutilization in most of MasTech all year long. Another point, most of our markets are far from peak levels, therefore, pricing today is only so-so and not slanted in favor of contractors.

Finally, while we have been investing to improve our business development capabilities. We can still be much better than we are today. Given all of these factors, even though 2010 is an extremely good year for MasTech, we believe that we can do significantly better in future years. Now let me cover Q4 guidance.

We currently expect Q4 revenue of about $643 million compared to $496 million last year. That is an increase of 30%, and our best quarter ever. We expect EBITDA of $77 million compared to $50 million last year. That's an increase of 54%, and also our best quarter ever. We expect fully diluted EPS of $0.37 compared to $0.22 last year, and that's an increase of 68%. Q4 book tax rate for 2009 was 28.9%, and for this year we now expect 40.9%, which has a negative impact of $0.07 on Q4, 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 having a terrific year in the midst of a mediocre economy. Q1, Q2, and Q3 were each better than our original expectations. We are encouraged by our Q3 39% organic non- acquisition revenue growth, and by our broad-based revenue and EBITDA growth. We expect a very strong Q4 driven by strength in pipeline, wireless, renewables installed in the home or DirecTV, and transmission substations. We are closing in on our double-digit EBITDA margin goal for this year, and 2010 will be 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.

Thank you very much. (Operator Instructions) First up from Barclays, we have a question from (Inaudible)..

Good morning, guys. Good quarter.

Good morning, thanks.

First, on the Ruby Pipeline project, you mentioned that most of the revenues could be in Q4 and Q1 '11. Are you assuming a roughly $50 million dollars a month run rate for those quarters, and still, could it possibly slip into Q2? I noticed El Paso, on their call yesterday, mentioned there some delay on Ruby that could push the completion to June next year.

I think roughly those numbers are accurate. You know, we could, toward the end of the project, we will actually have some cleanup work that we will do in Q2 for sure. We expect most of the construction activities to be complete by the end of Q1, and if not by the end of Q1, very close to Q1.

Okay. El Paso also said the Ruby was 10 to 15 percent over budget given the delays. I know this is a cost-reimbursable project for you, but are there any contingencies as to whether that could affect margins on the project? Have margins been generally in line with what Precision has historically seen so far?

The easy answer to the question is, the margins have been in line with what we expected. We have a great relationship with El Paso, and were working as hard as we can to finish the job for them as cost effectively as we can.

The overbudget doesn't affect you guys because cost-reimbursable, right?

That's correct.

Okay. And what percentage of your current pipeline revenues ex- Ruby are generated from Shale gas regions? Going forward, do you see that shift -- see that mix shifting more towards Shale? Is that the bulk of the industry growth right now?

I would say that almost all of our non- Ruby pipeline business is somewhat Shale-related, or at least the majority of it, so there's no question that's where -- you know, we said in remarks, it is definitely where we exceeded the expectations that we have led out from both revenues and profits. And more importantly, I think as we look at 2011, it's where we see significant growth opportunities as it relates to the pipeline business. We think the Shale business for us will be bigger in '11. We think there are tremendous opportunities there. We are working hard to expand within those Shales that we're very active, and working very hard at expanding into some of the Shale plays that today we're not in.

Okay. And can you talk about what contributed to the strong growth over the last couple quarters in DTV?

We have been saying it all year. I think they are having a fantastic year. I think as a company, they are executing at an incredibly high level. We are proud to be associated with them. You know, I think we are also performing extremely well in that business.

You know, there is some incentive compensation plans that they laid out over the course of the last year, year and a half, that have really helped us rationalize that business and perform in that business in a better way. But quite frankly, we have kind of been saying this for the last two quarters. We think that they are accomplishing this in what is a very poor residential market. Because ff you think about video television, why do people change?

In my opinion, you get most of the change because people are moving. They move into a new house, they have to make a decision on video. That's when I think DirecTV and the other cable operators get more activity. The reality is that in the market we have been in, a lot of people aren't moving. I expect as housing improves, and people begin moving again, that that will actually be a very positive event for DirecTV, and even help continue to grow their business going forward.

You know, I don't think there's anything we can point our finger at. There is no one thing that has happened with that customer that has really led to that growth. I think they are executing at a high-level, they are performing very well. They are having, obviously, great response from the market. We have been able to help them and benefit from that.

Okay. Thanks.

Thank you.

Next up we will take a question from Alex Rygiel, FBR Capital Markets.

Good morning, gentlemen. Great quarter.

Thank you, Alex. Good morning.

Thank you. First on backlog. Backlog looks like it's up about 10% year-over-year as you reported it, ff you include the backlog, up about 24% percent year-over-year. Can you give us a little sense in regards to the growth and backlog across some of the in-markets like wireless, wireline, pipeline, and I know you mentioned wind, but comment on the backlog in wind as well?

You know, when we'd talk about the revenue growth -- really, there were a number of businesses that we nearly doubled. Obviously, some of the other businesses grew north of 20%. You know, what we are saying about '11 is even some of the businesses that didn't perform at a really high level in 2010, like our wireline business, which hasn't seen a lot of a lot of growth, you know, we are actually booking and winning a lot of business that we think is going to drive 2011 growth for that business in particular.

So as you look our backlog growth, it is really broad-based. It is coming from almost all of our businesses. I think the beginning of '11 anyway is shaping up to be extremely good. We think overall 2011 is going to be a solid year. There is nothing in particular that is having a big impact on the backlog number. I think that the most important part of our backlog number is in spite of record revenues, and having the best revenues we've ever had, obviously, which were very high, we were able to not only maintain backlog but slightly grow it sequentially. We are pretty proud of that. Again, it's pretty broad-based.

And as it relates to your fourth-quarter guidance, it would appear that if we were to kind of back out Ruby, that the rest of your businesses you are forecasting sort of traditional kind of seasonal declines. Is that a fair comment? Again, kind of on the offset of that, looking at and including Ruby, it definitely looks like there is less seasonality in your business. I suspect that you do that very favorably. Could you comment on those two topics?

Sure. I think if you go back a few years, we've actually made two pretty sizable acquisitions in the fourth quarter of '08 and the fourth quarter of '09, which I think has somewhat -- if you don't back those acquisitions out of those quarters in particular, then it's hard to see the sequential decline, the normal sequential decline from Q3 to Q4. There is no doubt that in our business, Q4 tends to be a little bit slower than Q3. A lot of it is driven by the holidays.

You got Thanksgiving, which eats a bunch of days in November, and Christmas and the New Year's holiday at the end of the year. We've always been in a lot of municipalities and areas across the country that have some moratoriums where you can't work in certain areas. That's always a slight impact to Q4.So, we always expect Q3 to be slightly better than Q4. Obviously, Ruby is changing that dynamic in 2010 because of the size and scope of that project.

But there is no question that one of the things we've been working very hard at has been to reduce seasonality across all of our businesses, and try to make it a much smoother, you know, quarterly trend. While we are still going to peak in Q3, and Q1 is going to have some of the slowdowns because of weather, and commercially Q4. I think we have done a really good job at it, and I think we are going to be a little bit smoother going into the future.

Very helpful. Thank you very much.

Thank you, Alex.

Moving on now to Vance Edelson at Morgan Stanley.

Great job on the quarter. You've had to wait a long time to prove the back-end ramps so congrats on that .

Thanks, man.

Could you provide a 4G update? What are you hearing from AT&T and Verizon regarding the pace of their upcoming rollouts? Any change in the plans of the last few months?

No, we have said it is a 2011 event. We think it is going to be a very active 2011 as it relates to LTE and four G. Nothing has changed. We are starting to get a lot more clarity around what 2011 is going to look like and exactly what is going to be performed. But as expected, 4G is going to be a big part of it. I don't think anything has changed.

Okay, great. And could you share with us your broader thoughts, Jose, on the DirecTV opportunity for MasTech as it transitions from an installation opportunity to more of the maintains -- maintenance and upgrade opportunity? How quickly does that shift take place in your mind? What do you see over the next year or two? What's the relative size of those two opportunities?

Well, the maintenance and service business is already a huge component of our business with DirecTV. It represents almost two thirds of the workload. It is not a new business for us, it's one that we've always performed, obviously as the years have gone on and they have grown, That business grows with customer base. So as DirecTV continues to add to its customer base, there tends to be, obviously, more customers that have issues and you end up having more service calls and upgrade tickets and things like that.

That is no question a big driver of our business, and the you've got the installation piece, which is a smaller component, but obviously one that is driven by customer growth. The great thing about that business is that it is very predictable. And somewhat easier to plan and have a good idea and forecast.

Okay. That makes sense. And finally, any more specifics you can provide on wind in terms of the megawatts to be installed this year, and what you expect the backlog to be as we head into 2011?

You know, we have been saying all year that we are shooting for 1300. We think we are on track to accomplish that in 2010. We know that the wind numbers in general for the industry are somewhere are 5,000 to 6,000. As we look at 11, we think it is going to be a challenging year as 2010 was for the industry, because there really hasn't been any regulatory changes as it relates to wind, but we think we are going to be relatively flat in all of them versus '10. We are seeing a lot of wind opportunities currently. As we said, we actually won four new projects. Many of those will actually go through '11. We are excited about where we stand in that industry in the position that we have, and really, you know, we are having a great year.

Okay, great. Keep up the good work. Thanks a lot.

Thank you, Vance.

Moving now to Tahira Afzal at Keybanc.

Congratulations, gentlemen, on a great quarter.

Thank you, Tahira.

A couple questions. Number one, about, this year's turned out to be really good for you. Helped by (inaudible) positioning. Really, the (inaudible) as well. Could you touch base on Iberdrola, Nexterra, Edison Mission Energy -- really talk a bit about how your positioning looks for next year with them? And the other question I had was in regards to pipeline. I seem to be a couple other large pipeline projects out there including Enterprise Pipeline. And then later on next year, the second leg of Keystone. I'd love to get an idea as for your ability to bid on some of the larger projects outside of Ruby.

First, Tahira, on the wind side of our business, we have always felt that one of the strengths of our business, and really one of the advantages that we have had, has been the customer base and the customer relationships that we were able to build in that business over, obviously, a very long period. We continue to believe that the customers that we have been supporting are going to continue to be the influential and key players in the market, and are going to be very active participants in the market.

So we think we are riding the right horses. We continue to expand our marketing presence and really working hard at winning some projects from some others that we think are going to be either active, or more active, in future years. So we feel good about our market presence, and those that we are working with, and there is no question that that is a big reason for the success that we are having in 2010.

As it relates to our pipeline business, we expect and we think we are going to compete for every major project that is available to perform in the country. We think we have built a great reputation in that industry. I think customers know that we are a player and we've got something to add, so I think we will participate in all of the major projects and will be bidding for 2011.

Got it. And then if you look at the electric transmission business, one of your peers mentioned bidding activity being up 40% plus year-on-year. How are you positioned? and I know you've done really well on the small projects. Could you talk about whether you've been called in to bid on some of the larger projects at a greater frequency?

Again, it's an area of our business that we are very focused on. We spent, again, a lot of time and money trying to build that. I think we've done a good job. Obviously, we have been more focused on some of the smaller projects, partly because a lot of the larger projects haven't been there. There's been a lot of delays to some of the larger projects in the industry and that business.

I think that we are today participating in larger projects than we have ever participated in the past. We are being invited to the table with more frequency. I think customers have a much better understanding of not only who we are, but what we ultimately want to achieve in that industry, and I think that's been well received. I think that will pay off over time.

Got it. Okay. And last question as in regards to Telecom. I think, Jose, maybe I ask you this every quarter now, so I apologize. On the wireless side, any more (inaudible) being made on the Verizon side as of yet?

And I think I give you the same answer every time, so I'll do it again. I think we are doing a good job. We are doing a little bit of work for Verizon, today, we're doing a little bit of work for other customers. Obviously, with the growth we are experiencing at AT&T, it's been extremely difficult to really focus all of our efforts on growing other businesses when we have got such substantial growth to have to execute on.

That's been the challenge. Irrespective that, I think we are doing a good job. We are making good strides. I think we will continue to do that. I think that as some of these customers begin to go through that technology change outcome, that creates bigger opportunities for us. I think there's going to be a lot more opportunities for us in 2011 with some of those new customers that we've been targeting for a long time.

Got it. Okay. Congratulations, again, Jose, that's it for my end.

Thanks, Tahira.

Moving on now to William Bremer at Maxim Group.

Good morning, Gentlemen. Fantastic quarter. Nice to see your long-term strategy is starting to shine through here. I guess my first question. Let's go into pricing. You alluded to backlog up sequentially. How is the pricing of that backlog? Has there been any changes? Can you give us an idea of how pricing currently is in the marketplace, given some of your peers were seeing capacity issues and some pricing issues?

You know, I think pricing is stable. I don't think pricing is improving in the market today, it's a very difficult comment. Because obviously, there's a lot of different businesses that were participating, and each has its own dynamics. I think across the board, pricing is stable. We haven't seen, you know, really much improvement in pricing nor have we seen any significant declines in pricing. I think it's still a competitive market.

Going back to some of our other comments, I think what makes this quarter and really our performance in 2010 even more special, is the fact that we have done it in a very difficult economy. We have done it in time where the competitive landscape has been tough. Things aren't easy out there. A lot of contractors are hungry. For us to be able to perform at the level that we are performing at in the market, I think says a lot. I think it also shows to the fact that once that does improve, and it will improve, because the market is improving overall in terms of capacity, and as that gets eaten up, pricing will follow.

As it does, we are going to get our share of that impact. I think it is just going to make our performance in the future even better. We are not worried about where pricing is today. You know, we wish pricing was on the upswing a little bit faster, but, you know, it is pricing's stable and not much different than it has been for the last couple quarters anyway.

And then, Jose, could you give us just briefly, if you can, give us an idea of how your segments are currently running? What capacity is, say, communications, running at? What capacity is utilities running at? Just give us a ballpark of what you have got, what MasTech is capable of performing.

Again, and it depends on the business that we are talking about, right, because every business is in somewhat of a different state. If you look at wireless, obviously, we are almost doubling that business every quarter on a year-over-year basis. That business is that, obviously, running as close to full capacity as you can get. But when you look at a lot of our other businesses like our wireline business, or our distribution business, or even some of our bigger businesses that have a little bit more cyclicality, where they are having big months, and then they are on a project, off another, where you don't have that constant being able to move off one project to the next, you know, utilization rates are much lower.

We are probably running 60% in some, 80% in others, and at full capacity. It's a broad mix, but I think the overall point is that, if the economy was better, and we had a more similar economy than that of a few years ago from a construction perspective -- again, I think at some point we will get back there. Our results could be a lot better.

Excellent. And then finally, balance sheet is very superb at this point. Any insight to what the game plan is here?

You know, we continue to be very opportunistic. You know, we have seen -- I think if you look at MasTech's evolution over the course of the past few years, we felt like we really needed to make acquisitions to change really the profile of a company, to change the diversity of the company, where we were headed. I think we've accomplished so much in such short year , and I feel really good about where we stand in the markets where we are at today.

With that said, we are beginning to see a lot more opportunistic activity in some of our existing markets from a deal-blow perspective that did not exist over the last couple quarters. I am not saying we are actively looking and feel that we have to make things happen, but there is some very interesting and opportunistic things that are happening out there that we are listening and looking at.

From a company perspective, we've obviously been very, very disappointed with where our stock price has been and how it has reacted to our performance over the course of the last year. So, you know, as our cash balances grow, we are looking at that very closely. We feel that we are not in a position where we need to have, very large cash balances to operate and grow this business. So if we've got capital on our balance sheet, and we find a way to increase shareholder value by deploying that capital, we are going to

Okay, gentlemen. Congrats.

Thank you.

Now from Wunderlich securities, Theodore O'Neill.

Good morning, great quarter. Jose, on your assumption that the wind business would be flat in 2011, to the extent you feel comfortable being this granular, can you give us a split between the business that you are currently executing on, versus projects that you expect to get at 2011 to keep that number flat? The reason I ask this, is that the American Wind Energy Association is saying that there aren't any new projects that are coming online for 2011, that we are going to sort of glide into 2011 with what is being built right now. I know their numbers can be a little bit squirely, but I was wondering if you can give us some color on that.

Well, what I can tell you is we look at 2011 versus 2010. We have a pretty good understanding of the projects that we either expect to get, or our targeting from specific customers. So when we say we think we can be flat in '11, it comes from work in the process pretty hard, understanding what we think's going to be built in '11, and what our opportunities and chances are for winning those projects.

And talking to our customer base and understanding the projects that they have for '11, where we fit in for those projects. You know, we feel pretty good right now that we can maintain the same level on '11 that we did in '10. Some of that is already in backlog, some of it is to be negotiated on or bid on and won, but again, we feel pretty good. We said the same things at the end of 09. Contrary to everything else that was being said in the public market relative to win, I think we have very little credibility, and I don't think people believed us. But the bottom line is we are going to execute to what we said. I think '11 will be the same.

Okay. In the solar side, can you expand a little bit on where the -- where you see the opportunities? Clearly, that part, the solar business in the U.S. is going to grow in 2011. If you could be a little more -- tell us what regions or where you see your greatest opportunity.

You know, we are very active in the market. We are targeting projects all across the country of all different size and scale. You know, whether they are utility scale projects, we are looking at rooftop projects, looking at CPV, PV -- there's a lot of activity, there's a lot of developers. I think the challenge in the business is trying to identify those projects that are real and will ultimately be constructed, and those projects that, you know, are going to fall by the wayside.

I think that's where we learned a lot in our first year of the wind business, and really trying to understand and identify the different developers and what their plans were. I think we are trying to use that as we look at the solar opportunities ahead of us. We have bid on an unbelievable number of projects for unbelievable amounts of dollars, and we think we are going to get our fair share. We think of that market is going to be extremely active in 2011.

Thank you.

Noelle Deltz (?) now has a question from Steeple Nicholas.

Hi, good morning, and congratulations on a good quarter.

Thank you.

I just wanted to circle back around from fourth quarter guidance. Your guidance is within the range that was implied when you issued your third-quarter guidance back in August, and that seems a bit conservative given that the third quarter was so far ahead of your expectations and it seems like at minimum, wireless and DirecTV are running ahead of what you are looking at at that point. So can you comment, give us any additional clarity on a few things, if there is a business that is performing a little bit below your expectations, or if you are kind of just maybe being a bit conservative?

Well, a couple things. I think when you look at the third quarter, we executed it at an extremely high-level. We were very successful in the third quarter of booking and winning -- booking and earning work in a particular quarter across a number of our businesses. I think that those opportunities exist for the fourth quarter, but I don't think there's a lot of value in really setting the bar extremely high, you know, based on where we trade at today, to be quite honest.

We feel pretty good about our fourth-quarter guidance. We think it is, obviously, very achievable. Our intent is always to meet or exceed guidance, and, we are hoping that we can figure three months from now and talk about how we significantly be guidance again. At the same time, if we just get the numbers that are out there, it would be a record revenue quarter. It would be a record quarter as it relates to margins. We are guiding 50 BPs up on margins, both on EBITDA and pretax. You know, we feel good about the numbers out there. Our goal is to meet them or beat them.

Okay, great. And then could you discuss -- I was pretty impressed with as SD&A as a percentage of revenues this quarter. You seem to have pretty good control maintaining SG&A pretty much flat in the face of significant sequential growth. Can you talk about the sustainability of SG&A at this level over the longer term?

It goes back to utilization. What we said all along is we think we've got a company that can perform a lot more business than we are currently performing with what we have in place. It doesn't say that the raw numbers don't move because they will, because you'll have to out a little bit. But we could still, you know, grow the top line of this company with very little movement to SG&A. There's still a lot of room there. Our goal is to continue to improve that metric going forward.

Okay. Thanks a lot.

Thank you.

Moving out to Liam Burke at Janney Capital Markets.

Thank you. Good morning, Jose.

Good morning, Liam.

On the wireline, you discuss that you've got more projects coming up in the backlog. Are a lot of these projects stimulus-related, or is there something else in the mix there?

They're stimulus-related.

Okay. And, same with the wireline. If you are going to require additional investment going back to the capacity issue, or can you reallocate resources to get that done?

Again, we think we are sitting on -- we think we are sitting on actual resources in that business. All that is going to do is improve utilization levels in that business. Obviously, we will hire a little, but we don't think we've got to do a lot to execute on the business that we want or are expecting to win.

Great. Thank you.

Thanks Liam.

Will take the question now from John Rogers with D.A. Davidson.

Good morning.

Good morning, John.

A couple things. First of all, maybe for Bob, the amortization schedule for next year, does it drop off substantially with the anniversary of some of these acquisitions?

It does, and there is, in the K, is an amortization schedule. From memory, I am going to look it up. I think it goes from $13 million this year to like $8 million. If you give me a minute, maybe we'll take the next question and I'll look for that number.

Okay.

But it does drop off quite a bit.

Okay. Secondly, the Red Star option that's out there, can you just -- given DirecTV is doing better, is there a realistic possibility that this unit gets sold?

Just to give a little bit of background, Direct Star is our DirecTV sales business, so it's the arm of our business where we actually sell product into the marketplace. You know, we did that deal a long time ago. It was somewhat of a self-funded startup where we had some partners, we eventually bought them out, and over time there was an option that they could exercise to buy that whole business. We have a lot of disclosure in our queue around that.

You know, we are not sure whether they are going to exercise it or not. Obviously, It is up to them. We think there is a good chance that they will, but time will tell. The business is performing well. Again, it's a sales business, so it is not necessarily in the court of what we do, but it's a good business.

Okay. Last thing, Jose, you talked about, or implied, that margins could be better in a stronger economy. I think it is primarily margins when you say you think you could be earning a lot more. They have a little bit more tailwind. Looking back at MasTech, it's a little bit hard because of the transformation that you've been through to look at old historic margins. Can you just give us a sense -- I mean, not a prediction, but a sense of how much outside there is there?

Well, what I can say is in 2007, we were sitting at the 7% EBITDA, and we set a goal for ourselves of 8% to 10%. Now we have exceeded that now, and there is no question that it's probably time to update those goals. But as we look -- I think it's two things. It is obviously margin. All lot of it is driven on revenue growth, right, because you got the improvement in utilization has some revenue growth, but obviously at a much better margin that additional revenue because you've got the capacity to do it today in house.

Alright.

Again, I wouldn't say that every business is in that boat, but we have a number of businesses in that boat. I would think that if you are looking for somewhere between zero and 200 basis, it's probably the right thing to think about in terms of long-term margin potential.

Okay. And that's across the entire business.

More so in some than others. Even the business that are growing rapidly, there is inefficiencies in growth, so as you are doubling the business year-over-year, you are not getting -- you are not mining margins out of that business to the extent that you want because you are growing at such a fast level. As things begin to somewhat normalize, you end up mining a lot more margins out of those businesses. So yeah, I would say across the board.

Okay. Great. Thanks very congratulations on the quarter.

Bob's got an answer for you on amortization.

My first answer was correct. It is $13 million this year, and then our K last year, the runoff would be $7.6 million in '11, and then further declines as the intangibles amortize out.

Okay. And I assume, Bob, most of that really starts it really drops off later in the year as the actual anniversary of the acquisition?

Yes.

Perfect. Thank you.

Thanks, John.

Question now from Veny Aleksandrov at Pritchard Capital Partners.

Good morning. Thank you for taking my questions. I had some telephone problems.

Good morning.

On the pipeline side, it looks like you had a great quarter, and you are doing a lot of work in the Shales. My question is, what is the (inaudible) by some (inaudible)? Is the strength really sustainable with (inaudible) natural gas prices? And what are the early indications for 2011?

We think it is going to get better. We are seeing a lot of activity. We are having a lot of dialogue with our customers. We think -- you know, we think it is an explosive market.

So that's the only thing for (inaudible) even if gas is where is it?

Our understand is, specifically as it relates to Shales, there are a lot of people going full steam ahead, irrespective of where the natural gas price is today.

Okay. Thank you. And in my next question is on the communications side, the communication infrastructure. It looks like, on the wireless side, your clients just need to expand their infrastructure constantly. How much more resources do you have without having to go out and spend significant CapEx to service this expansion? Or you're going to start bringing capacity back from other segments. Is this the plan?

We are not moving a significant amount of capacity around. We're trying to build the capacity within that business. You know, I think we have done a great job. I don't think it's really stressed -- not to take anything away, because it's absolutely remarkable what they have been able to accomplish. But it's not like we are incredibly stressed or have incredibly stressed the organization to accomplish what we have. And the reality is that we are working extremely hard to try to obtain the highest growth rates possible in that business for the foreseeable future.

(Inaudible) you can support the growth. Okay.

We don't think there is significant capitol investment requirements regardless of the growth in the business.

Thank you so much. I appreciate it.

Thank you, Veny.

With that, we will conclude today's question-and-answer session. Thank you for your participation. I'll turn things back over to Jose Mas.

Again, I'd like to thank everybody for joining us today. We look forward to updating you again in three months. Have a great day.

Thanks again for joining us, everyone. That concludes today's call. Again, have a good day.