MasTec Inc (MTZ) 2011 Q2 法說會逐字稿

Welcome to today's MasTec Second Quarter Earnings 2011 Conference Call, initially broadcast on August 4, 2011. Let me remind participants that today's call is being recorded.

At this time, I'd like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Thanks, Melody. Good morning, everyone. Welcome to MasTec's Second Quarter Earnings Conference Call. The following statement is made pursuant to the Safe Harbor for Forward-Looking Statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we may make certain statements that are forward-looking, such as statements regarding MasTec's future results, plans and anticipated trends in the industries where we operate. These forward-looking statements are the Company's expectations on the day of the initial broadcast of this conference call and the Company will make no effort to update these expectations based on subsequent events or knowledge. The various risks, uncertainties and assumptions are detailed in our press releases and filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may different significantly from results expressed or implied in this communication.

In addition, we may use certain non-GAAP financial measures in this conference call. Reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP measure can be found in our earnings press release from yesterday or on the Investors Relations section on our 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 of the call will be opening remarks and analysis by Jose, followed by financial review from Bob. These discussions will be followed by a Q&A period, and we expect the call to last for about 60 minutes.

Once again, we had another great quarter, so we have a lot of good things to talk about today. So I'll now turn the call over to Jose, so we can get started. Jose?

Thank you, Marc. Good morning and welcome to MasTec's 2011 Second Quarter call. Today I'll be reviewing our second quarter results, as well as providing my outlook for the markets we serve. First, some second quarter highlights.

Before I start, it should be noted that during the quarter we had a $29 million pre-tax gain running through the other income line, that's $0.20 per diluted share after tax, related to the April 29th exercise of our option to buy the remaining two-thirds of EC Source that we did not already own. My comments today exclude this non-cash gain.

Having said that, revenue for the quarter was $751 million, that's a $256 million increase over the prior year's quarter, of which $218 million or 85% was organic. EBITDA was $71 million, a 53% increase over the prior year's quarter. Earnings per share was $0.31 versus $0.18 in last year's second quarter, a 72% increase. Net income was up $12.2 million, an 83% increase. And backlog was up nicely to $2.9 billion, and the bid and project pipeline remains strong. I'll cover that later. In short, we had a very good second quarter. Our 52% revenue growth was broad-based with every one of our markets up double digits, with the exception of renewables, which was down

.Historically, we have enjoyed an increase in business in the third quarter. This year, that spike happened earlier than expected, with a significant ramp-up late in the second quarter. That ramp-up allowed us to beat previous guidance, with revenues exceeding guidance by $75 million or 11%. That ramp-up, while a testament to our diversified business model and an example of our future growth potential, had an impact on both working capital and costs. For example, during the second quarter, our team member count actually increased by almost 2,400 people.

While we've been in a very challenging market environment and we expect it to be a little choppy, there are significant signs of improvement and demand for our services is strong. We have seen over the course of the last few months, a meaningful increase in large project opportunities affecting a number of our markets. Our customer's confidence level for 2012 are increasing and we expect there to be a greater number of opportunities compared to the last few years.

Now, I would like to cover some industry specifics. Our Communications revenue grew 40% over last year's second quarter to $393 million. This increase was driven by double-digit growth in all of our communication markets, including Install-To-The-Home, Wireline, and Wireless.

In our Install-To-The-Home business, revenue from DirecTV was up 23% for the quarter. This was better than we expected and we anticipate a strong finish to the year with the conclusion of the NFL lockout. Late in the second quarter, we acquired Halsted, a service provider for DirecTV, covering New York and a number of other states in the Northeast. This was our first geographic expansion with this customer since 2006. We have fully integrated this acquisition in our DirecTV business and feel we can make significant improvements in both their service delivery and financial performance. Halsted was operating in very low margins, and while we don't expect much, if any, contribution for 2011, we do expect significant margin enhancements in2012.

Our Wireline business experienced growth for the third consecutive quarter, driven by broadband stimulus-funded projects. Awards have continued to increase and the pipeline of project remains strong. We are currently bidding on over $150 million of projects and we continue to believe this will be a source of growth for the next few years.

Shifting to Wireless; we experienced tremendous growth during the quarter, with revenues almost doubling those of a year ago. This increase was higher than expected, causing us to hire a significant amount of resources to meet the schedule and demands of our customers. This year, the work plan has been more level-loaded. Last year, most of our wireless activity was completed in the second half of the year. But this year, we are expecting volume in the second half of the year to be fairly consistent with the first half. This will allow to us better manage our cost structure to revenues.

In 2012, we expect significant growth driven by LTE or 4G and our recently awarded, multi-state generator project. In addition, during the quarter we closed on a small tuck-in acquisition that will expand both our geographic and customer footprint. The wireless market continues to afford us great opportunity. The expansion of LTE or 4G, which we believe will be adopted by not just the US major carriers, but eventually by most of the carriers in the world, should provide us with solid, long-term growth opportunities.

Now I would like cover our Utility business. Our utility revenue grow by 72% over last year's second quarter to roughly $347 million. The increase was driven by double-digit growth in our distribution, transmission and pipeline business, offset by a reduction in our renewable revenues.

As it relates to our Transmission business, revenues were up due to our EC Source acquisition and growth of about 41% in our legacy transmission business. We have guided to approximately $200 million in transition revenues in 2011, with about half of that coming from EC Source. The bid pipeline is very strong and includes a number of very large opportunities. We have recently been awarded a number of projects from key customers, including PG&E, ConEd, and National Group. The outlook for our Electrical Transmission business is strong. developers to small developers.

Moving to Renewables; 2011 has been a little more challenging than we expected. In 2011, a number of our customers are new to us and we saw a shift this year from our traditional customer base of large developers to smaller developers. This was partly based on large developers having planned for a soft 2011. While we're currently working for a number of small developers, and their projects are on track, we have seen project delays and cancellations after projects have been awarded to us. We even had a developer who had his negotiated power purchase agreement with a public utility canceled by a state public service commission. This has lead to a softer first half, and looking forward, a softer third quarter than we expected.

The good news is that we have seen a dramatic change in activity levels for 2012. A number of large developers, traditional MasTec customers, are now significantly accelerating wind projects for late 2011 and 2012. We have, over the last two months, been given indication of award on nearly 750-megawatts, with hundreds more under negotiation. Many of these projects will begin in the fourth quarter and complete sometime in mid to late 2012. We are confident that we will now enter 2012 with our highest ever renewable backlog.

With respect to Solar, we continue to work on a number of large opportunities and believe we have a chance of starting a significant project before year-end.

Our Oil and Gas Pipeline business had another excellent quarter, with revenues more than double that of last year's second quarter. We are now substantially complete on the Ruby pipeline project. Revenue for that project was approximately $88 million in the quarter, compared with $122 million in this year's first quarter. Excluding revenues from the Ruby pipeline, our Pipeline business was still up over 45% compared to last year. During the quarter, we were rewarded approximately $160 million worth of new projects and backlog today in this business is roughly equal to where it was in last year's second quarter before our kickoff of the Ruby project.

Almost 60% of our Pipeline revenues for the quarter was driven by shale work and our pipeline of new shale work remains very strong. Shale basins everywhere are expanding capacity. For example, production in the Pennsylvania Marcellus Shale is expected to grow by almost 800% over current levels by 2020. And the demand for building the infrastructure for the transportation of the gas continues to grown in tandem with this clean domestic energy resource.

We have also seen an increase in the number of large non-shale related projects. We are currently bidding or negotiating a number of large Ruby-like opportunities. We are excited about the activity we're seeing in the pipeline business and expect it to be an area of growth for us for years to come.

In summary, we had an excellent quarter. More importantly, our future remains bright. We are excited about the number and size of the opportunities we are now seeing in a number of our end markets. Our breadth of services, our brand, and our commitment to working safely with a high level of quality are now much more recognized by our industry than at any point in our history. While we are pleased with our results and the progress we have made, we continue to strive for improvement. From the execution of the opportunities ahead, to our continued focus on margin improvement, we feel MasTec's best days are still ahead of us.

I would now like to turn the call over to our CEO, Bob Campbell, for the financial review. Bob?

Thank you, Jose. Good morning. I'll cover four areas; second quarter financial results, earnings guidance, cash flow and liquidity, and I'll have a few remarks about our capital structure and expanding our bank credit facility. Once again, we had another very quarter as a part of what should be a very good year.

As Jose mentioned, second quarter results reflect the impact of exercising our option to purchase the 67% of EC Source that we did not already own. EC Source is our entry into the large project extra-high voltage electrical transmission market. Exercising this option resulted in a non-cash remeasurement gain related to our initial 33% investment in EC Source in 2010. The pre-tax gain was $29 million or $17.7 million after tax or $0.20 per fully diluted share. In order to have more meaningful year-over-year comparisons, I've excluded this $0.20 per share other income item from all of the earnings numbers in my remarks. Therefore, I will be discussing adjusted earnings figures which exclude the remeasurement gain. The adjusted numbers are in the tables attached to our press release.

The Q2 highlights are as follows; Q2 revenue was $751 million, up $256 million or 52% versus last year. Q2 organic or non-acquisition revenue growth was up $218 million or 44%. So we have had organic growth of at least 35% for each of the last four quarters.

Q2 adjusted EBITDA was $71 million compared to $46 million a year ago, an increase of 53%. And adjusted EBITDA is up 60% year-to-date. Q2 adjusted EBITDA margin was 9.4% versus 9.3% last year.

Adjusted fully diluted earnings per share was $0.31 compared to $0.18 last year, an increase of 72%. We are very excited about the EC Source transmission acquisition, but it was $0.01 diluted in Q2.

Finally, we have raised our earnings guidance again. In summary, Q2 was another good quarter and the outlook for 2011 and beyond continues to be strong.

Now, for the Q2 details. Q2 revenue of $751 million increased by $256 million or 52% year-over-year. That's MasTec's highest quarterly revenue ever. Organic or non-acquisition revenue growth was $218 million, a 44% increase, and it was pretty broad-based.

Pipeline revenue more than doubled in the second quarter, excluding the impact of the Canadian Fabcor acquisition. Pipeline, in total, was up about $130 million in Q2, and about $75 million of the increase came from the Ruby Pipeline project. Our shale work around the US continues to grow nicely. In fact, pipeline revenue was up about 45% without Ruby and without the Canadian Fabcor acquisition.

Wireless revenue in Q2 was up about $85 million, or almost double last year, representing continued strong growth in the 3G upgrade process. And with the coming 4G LTE cycle and the new AT&T multi-state generator project, we should be busy for years to come. The small tuck-in acquisition that closed in Q2 did not have a significant impact on our Wireless results.

Our Electrical Transmission business now gets much longer after closing the EC Source acquisition on May 2nd. Our Transmission and Substation revenue, including EC Source, was up 125% from Q2 last year.

Install-To-The-Home revenue continues to surprise us with better than forecasted growth. Our Q2 revenue was up 23% and that was all organic growth. While we are excited about serving a significant part of the Northeast market via our Halsted acquisition, the acquisition had no impact on Q2 because it closed with a June 30th effective date.

Our Telecom Wireline revenue and Electrical Distribution revenue were both up in Q2. That's the third quarter in a row that Telecom Wireline has been up and the second quarter that Electrical Distribution has been up. Jose mentioned that the broadband stimulus work that is helping our Telecom Wireline growth. To be fair, both businesses, while currently up, are still well below the levels of two or three years ago.

Second quarter gross profit margin was 14.4% versus 15.7% last year, as a result of the following factors; higher fuel costs, contractual discounts to AT&T, and higher commissions in our DirecTV marketing business, all of with which mentioned for Q1. Also, we had some inefficiencies related to handling increased volume in Wireless and lower margins in our Renewables business. Higher fuel costs -- regarding higher fuel costs, the negative impact was about 80 basis points, net of fuel surcharges.

Q2 depreciation and amortization expense of $18.6 million was up $4.4 million from Q2 last year, reflecting higher CapEx in growth and fixed assets, and higher intangibles amortization for the recent acquisitions. Depreciation and amortization, as a percent of revenue, dropped from 2.9% down to 2.5%.

Net interest expense for Q2 was $8.3 million compared to $7.3 million last year, mostly due to the new phantom or non-cash interest costs associated with our convertible note exchange. However, as a percent of revenue, interest dropped down from 1.5% down to 1.1%.

Our G&A expense was $38 million compared to $31 million a year ago. As a percent of revenue, G&A dropped from 6.3% down to 5%, and that's our lowest second quarter G&A percentage ever. Our trendline regarding G&A has been very good. We have been improving as a percent of revenue for almost all of the last 14 quarters, with just a couple of the quarters flat.

To summarize what happened in Q2; we had terrific and higher than forecasted revenue, revenue was up 52%, our gross margin percentage was down for the reasons I mentioned, and all other costs dropped as a percent of revenue. Therefore, EBITDA margin of 9.4% was up slightly, a tenth of a point, compared to Q2 a year ago. I mentioned earlier the 53% increase in adjusted EBITDA for the quarter and the 72% increase in adjusted fully-diluted EPS .It's also worth noting that Q2 adjusted net income was up 83%.

For the second quarter of 2011, the ten largest customers were; AT&T, 24% of total revenue; DirecTV, 20% of total revenue; El Paso Corporation, 12%, that's our Ruby Pipeline work; Energy Transfer, 4%, they're a shale pipeline customer; Talisman Energy, 3%, they're a shale pipeline customer; DCP Midstream, 2%, they're a shale pipeline customer; Ridgeline Energy, 2%, they're a renewables customer; Caiman Energy, 2%, they're a shale pipeline customer; Chief Oil and Gas, 2%, they're also a shale pipeline customer; and Verizon, 1%. It's good to see Verizon back in our top 10.

Regarding diversification; our top ten customers now include one satellite television customer, two telecom customers, six pipeline customers, and one wind farm customer. We look forward to having electrical transmission customers make our top 10 list.

Let me talk for a minute about our revenue mix. We split our revenue into two categories. First, we have a very large base of generally recurring revenue coming from what we call master service agreements and similar contracts. And for Q2 that was 57% of total revenue. And second, we have revenue from one-time non-recurring construction projects. And for Q2 that was 43% of revenue. Therefore, we have a very large and pretty stable revenue base for master service agreements and similar contracts. More disclosure about our contracts is our 10-Q.

At June 30th, our backlog was $2.9 million (sic) and that's an 18-month backlog number. The comparable number for Q2 a year ago was $2.2 billion and it was $2.6 billion last quarter. Please note that well over 50% of our revenue comes from master service agreements or other similar contracts, and our backlog includes an estimate of the next 18 months of revenue for most contracts.

Now let me talk briefly about our cash flow, liquidity, and capital structure. Net cash flow provided by operating activities was $5 million year-to-date, compared to $28 million a year ago. And at June 30th, cash was $78 million and our liquidity was $188 million. A year ago, cash was $69 million, and our liquidity was $183 million. We define liquidity as unrestricted cash plus availability on our bank revolver. Looking at cash flow and cash usage for the quarter, we had a spike in growth of accounts receivables and inventory that negatively impacted cash flow from operations. And we did make five acquisitions.

Regarding accounting receivable; our Q2 day sales outstanding, or DSOs, were 70 days, as compared to 58 days in Q1. The last two quarters have been under our current DSO goal of 60 days, due to good collections, but also some unusually favorable payment terms on large projects. Some of the Q2 DSO increase is the result in shifts in customer and project mix and some relates to a backlog of wireless projects that need to be closed out and approved for payment. We expect to improve DSOs by year-end, but we will likely be above our 60 day stretch goal.

We had $17 million in capital expenditures in Q2 and $32 million year-to-date. We have raised our estimate of full year 2011 CapEx to $50 million, reflecting current needs and the impact of the five acquisitions that we closed in Q2.

To summarize our expected cash flow characteristics, I would say this; adjusted full year EBITDA continues to grow nicely at $290 million, DSOs likely to be in the 60s, beats many of our peers, CapEx of about $50 million this year, seems modest for a company our side, earn-out payments will be down significantly from last year, at about $45 million, and cash interest, well under $30 million, is also reasonable. Therefore, our cash flow should be strong again this year, despite having to pay cash taxes now, now that we have exhausted our federal NOLs.

As a quick capital structure summary; at quarter end, we had $840 million in equity, $424 million of total debt, only $345 million in net debt, that's net of cash, and we expect to have $290 million of 2011 adjusted EBITDA. Therefore, all of our capital structure ratios remain in very good shape.

We are currently exploring the option of extending our bank deal for five more years, upsizing it and changing it from an asset base to a cash flow type credit facility. The interest rate subject to a grid is expected to be better than our current deal, and likely in the range of LIBOR plus 200 basis points. Covenants should be less restrictive than our current deal. We expect that the size of the facility could be in the range of $500 million, compared to the current facility, which is $260 million. We estimate that availability under an amended credit facility might be in the range of $400 million as of the closing date, compared to about $125 million with our current facility.

Now let me share with you our thought process regarding extending and upsizing our bank credit facility. We may be dealing with the extension of our credit facility much earlier than its May 2013 maturity to take advantage of today's very attractive bank market. Our current facility size is $260 million, and while it has no outstanding draws -- or while it had no outstanding draws at June 30th, it does support about $100 million in letters of credit.

We are exploring upsizing the credit facility to one in the $500 million for the following reasons. One, the potential pricing and terms are awfully attractive. Two, we are a rapidly growing and dynamic company. Three, we have been acquisitive and will remain opportunistic regarding acquisitions. Four, a larger facility may give us another option regarding the 2014 maturity of our convertible notes. And five, we expect that the unused line fee for an amended credit facility could be in the range of 35 basis points, subject to a grid, compared to 75 basis points in our current deal. So it would be reasonably inexpensive to carry a larger, and at times, undrawn facility. Potentially obtaining an upsized credit facility in the range of $500 million at favorable economics and terms is nothing more than normal capital structure management.

As we noted in our press release, we are again raising our full year guidance. We now expect revenue of $2.875 billion, adjusted EBITDA of $290 million, and adjusted fully diluted EPS of $1.27. 2011 revenue of $2.875 billion is an increase of 24% over $2.3 billion in 2010. 2011 adjusted EBITDA of $290 million is a 20% increase over $240 million a year ago. And adjusted EPS of $1.27 is a 21% increase over $1.05 last year. The tax rate on our adjusted earnings in our 2011 guidance remains at 39%, and amortization of accusation-related intangibles is $15 million.

Now let me cover Q3 guidance. We expect Q3 revenue of about $775 million, compared to $632 million last year. That's an increase of 23%. We expect EBITDA of $82 million, compared to $73 million last year, that's an increase of 13%. We expect fully diluted EPS of $0.36 compared to $0.35 last year, that's an increase of 3%.

Now let me offer a little color about our increased guidance. Our comps for Q3 and Q4 are pretty tough because we had an extraordinary second half last year, helped by the Ruby Pipeline project. So we feel really good about our outlook for the second half of the year. Our guidance reflects an up quarter for Q3 and a good fourth quarter. EBITDA margins will be down somewhat in the second half of the year compared to last year for many of the same reasons that I discussed for Q2. However, we expect Renewables margins to rebound in the second half of the year and we expect wireless margins to gradually improve after some Q2 inefficiencies resulting from the increased volume.

Also, as Jose mentioned, the Halsted DirecTV acquisition is a little bit of a fixer-upper. It should be a very good acquisition for us over time. And while it will add to second half revenue, it likely will not contribute much in earnings until 2012. Jose mentioned some of the encouraging levels of bidding activity in our markets, which gives us early optimism for 2012.

Regarding share count for EPS purposes and the non-cash interest expense on our P&L, I suggest that you refer to footnotes two and nine in the 10-Q for details to our calculations. Also, for your information, we issued 5.1 million shares for the EC Source transmission acquisition on May 2nd, which will be in our share count from that date forward. For your models, would use about 90 million shares for Q3 and Q4, and about 88 million shares for the full year of 2011. Please note that the share count can go above the levels I just mentioned, if our stock price continues to go up. The increased share count would come from additional dilution related to our convertible notes. And an easy rule of thumb, you need to add 300,000 to 500,000 shares for every dollar increase in our stock price.

With our recent convertible note exchange on 94% of our converts, we can now elect to pay the principal and/or premium in either cash or stock at our sole option. Our current intent is to pay the convert's principal in cash and in-the-money premium in stock. If you struggle with the convertible note EPS accounting or the non-cash phantom interest expense related to the convertible notes, give Marc Lewis, our VP of Investor Relations a call and can he walk you through the calculations.

In summary, we had another nice quarter in the midst of a soft economy. We're very encouraged by our organic or non-acquisition revenue growth, and by our broad-based revenue and EBITDA growth trends. We expect a very strong year, driven by strict in Wireless, Pipeline, Install-To-The-Home or DirecTV, and Electrical Transmission. And we believe that the outlook for 2012 is clearly better.

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

Thank you. (Operator Instructions). We'll go to Andrew Kaplowitz with Barclays.

Can you hear me okay?

Yes, we can now.

Jose, EBITDA margins, sequentially, are expected to go up one hundred basis points give or take. And Bob gave nice color on some of the things that will happen in the second half of the year. I'm just wondering about the confidence level -- and more details about where the improvement will come from. How much of it will be fuel costs subsiding a bit versus Renewable margins going up or the Wireless business getting better, in terms of the efficiencies?

Well, Andy, I don't think we're really counting on fuel costs subsiding. Fuel is generally going up and down a little bit, but it hasn't changed much here in the last few months. So I don't think that's where we're really drawing from, as we look at Q3 and Q4.

There's a couple of things to note. Obviously, we talked about our Wireless business and some of the challenges we had with meeting the demands in the second quarter. So we fully expect that, as the volume somewhat levels out and the growth isn't astronomical, we're going to do a better job of managing that, have a lot more efficiency in our business model.

I think the other thing you have to take into account is, we just closed on EC Source in the second quarter, so they begin to play a bigger role in the back end of the year. And we talked all along about where we think Transmission margins are compared to the rest of the business. I think it really is the things that Bob talked about. It maybe adding the EC Source transaction in the back half of the year and Renewables getting a lot better in the fourth quarter, as their business really picks up.

Okay, that's helpful, Jose. My other question is around the natural gas pipeline business. It appears that even without long haul, shale activity is leading to growth. How do you view it over the next year, Jose, in the sense that -- let's say long haul projects even get pushed to the right a little bit. Can you grow the business just with shale? Or do you need the long haul projects as well?

Well, we can absolutely grow the business -- we can grow the shale business. The question is, can the growth in the shale business offset the revenues that we generate from the long haul pipeline projects that we saw in late 2010 and in the first half of 2011?

Exactly.

The answer is, we think we can. But with that said, we fully expect to be doing long haul projects in 2012.

Okay, that's easy enough. I'll get back in queue. Thank you.

Thank you, Andy.

Next we'll go to Alex Rygiel with FBR Capital Markets.

Thank you. Congratulations on a nice quarter, Jose and Bob.

Thank you, Alex.

One of your peers has had difficulty in managing the profitability of their pipeline business once larger projects have rolled over. Can you address your ability to forecast the profitability of pipeline business over the coming three to six months, as Ruby comes to an end?

We can. One of the big differences, I think, at MasTec is, we've been a player in the shale fields for a long time. It's been a key part of our business for multiple years. We think we're a leader in that business across a number of different shale plays. We're very active in, not just one shale, but in multiple shales. We think we have a very good market share percentage in the different shales that we play. So I think we have an enormous amount of experience and an enormous amount of history, as it relates to our non large project pipeline business. So we've got incredibly good history and detail around what we think the margins are in that business. Our confidence level is very high.

As it plays into the long haul pipeline -- the long haul business, the question becomes, when do projects kick in and what's the timing of that? So we've built that into our back end of the year plan and we're very comfortable we can achieve the margin targets that we've put out.

And also, can you talk a little bit about international? Obviously, you're a little bit more aggressive now up in Canada. But in addition to Canada, can you talk about other international markets that you could be looking at and what business segments?

MasTec has changed. If you look at our Company over the last four or five years, we're extremely diverse in the services that we're offering. I think, for the most part, we're still a domestic-based company. But I think we operate in some business segments today that lend themselves very well to expanding internationally.

When I look at our portfolio of businesses and you look at what it takes to build and deploy large scale wireless projects, what it really takes to deploy a large pipeline project or even a renewable project, and what's happening with those three businesses, not just in the states, but across the world -- we think that most major carriers in the world are going go to 4G. I think US is somewhat early to 4G, where I think we were late to 3G. I think that's a big difference in dynamics that gives those companies that are participating in the 4G roll-out in the United States opportunities for international expansion.

When you look at what's happening with natural gas, in general, across the world, you're seeing some very large natural gas pipelines being built in some different international markets, as well as renewable projects that are really starting to kick up, internationally.

We're not of the mindset or in the middle of a plan to dramatically grow our international presence, but we are looking at international projects and we are being approached by a number of our customers that are going international that ask us to follow them . In those cases, we're looking at it, and if it makes since and we think we can do it effectively, we're absolutely considering doing

That's great. Thank you.

Thank you, Alex.

We'll hear next from KeyBanc's Tahira Afzal.

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

Thank you, Tahira.

My first question is in regards to the large opportunities you see, Jose mentioned that earlier on. Could you give your commentary an update on the more publicized ones that you might be able to talk about? Number one on the pipeline side, EXCO Kingston, your positioning and, incrementally, what might have changed for you, as a company, there?

And number two, on a couple of the large projects that you have seen on the transmission side -- assume you might be bidding on something on [Funsilla] and the [Divis] lines on the west coast. And really talk about, perhaps, the electric transmission side, in terms of, perhaps, capacity tightening and what that could imply for you guys?

So a lot of questions in that one question, Tahira, but I'll try to summarize. We've taken the approach in the past that we don't like to discuss individual projects for a lot of different reasons, so we're not going to do that. But what I will say is -- we'll start with pipeline, because that's really where the questions started. We are seeing a number of opportunities of large scale projects that are currently in queue, either in the process of being -- or either already bid or in the process of being negotiated. And we're either bidding or involved in negotiation in a number of very large projects on the Pipeline side of the business, and that's about all I'll say there. Our level of confidence is pretty high as it relates to that business and our ability to get large projects for 2012.

As it relates to Transmission, there are a number of large projects across the country that are bidding that I think have been in queue for a long time. And we are participating in those that we feel we have the best chance of winning. We're still confident that we're going to win another large-sized type project over the course of the next six to nine months. We think that the capacity constraints in that business are beginning to build. Obviously, a lot of work has been awarded. Hopefully, pricing follows, and I think at some point, it will. I think our competitive position there is exactly where we expected it to be at this time.

Got it, okay. As you look into 2012, and I know it's too early to comment as of yet, but from all of these businesses, it seems most of them are going to be growth mode in the next year. What would you say, in terms of year-on-year growth, as you look out from right now? Which end markets do you think are going to the greater growth opportunities for you and we should focus on?

I think first word, a very fortunate position. No question that we feel really good about our prospects. And as we detailed out, we actually have really high hopes almost across the board in all of our businesses. From a pure dollars and cents of things that can really move the needle, and there's a lot of them. It could be -- on the renewable side of the business, we think there's going to be a considerable ramp in 2012 versus where 2011 was, starting with the Wind business and obviously, we're getting tremendous traction there. We think Solar has the ability to actually play a much bigger role in 2012. And the dollars there are big, so it can really move the needle. We have our BlueFire project that we didn't really discuss today, but it's out there, we're still confident that it's a project that, at some point, will go forward. Those are all significant projects that -- any or all significantly move the needle.

When we look at Transmission, obviously when you look at the size of the transmission projects being awarded, projects there move the needle. When you look at our Wireless business, we expect continued growth in 2012, based on what's happening in that industry with 4G. Then in the Pipeline business, a number of large opportunities out there with our associated and growth in shale and with new large projects added, 2012 could really be a great year.

I guess the short of it is, we're in a very fortunate position. And we don't need everything to hit, but obviously as things begin to hit in our back end of this year, we start hopefully get awarded projects, 2012 becomes a lot more clearer and it really could be a fantastic year.

We'll go next to Peter Cheng with Credit Suisse.

Good morning, nice quarter. And thanks for taking my question.

Good morning, Peter, thanks.

Thanks. The cost and efficiencies -- you touched upon what fuel costs impacted the quarter by. I think it was 80 basis points. Have you guys gone through the exercise of what the DirecTV commission increases, the wireless pricing discounts, the subcontractor wages, and what maybe acquisition costs -- what all those line items impacted the operating margin by, in the quarter?

Peter, I don't think we have a number to share, but I don't think the numbers are really different than the ones we discussed in the first quarter. For a lot of those issues -- in Q1 we talked about an 80 basis point deterioration in margins related to the DirecTV sales business along with some of the wireless discounts that we gave. You add in 80 basis points of fuel, you're probably looking at about 160 basis points on a year-over-year comparison, related to the items that I think Bob laid out.

Thanks for that, that's helpful. On the Wireless business -- that business, in the first half of the year, has essentially doubled or more. Comps are getting tougher in the back half. How should we be thinking about the growth in that segment, considering AT&T -- or first of all, considering your performance thus far -- and then AT&T's bullish comments on investing in both 4G and 3G infrastructure for the remainder of the year?

Couple of things. I think embedded in our guidance we don't have some of that commentary that AT&T made. I think AT&T made some pretty direct comments about capital spending for the back end of the year and what it was going to mean to them. Other than the public comments that they've given, we don't have a lot of visibility of that. So we're looking at our business irrespective of that.

What we did say earlier in the call today is, we do expect the second half of the year to be closer to the first half. Last year, I think, 65% of our work in the wireless business was done in the second half. I don't think you're going to see that kind of skew based on the work plan that we have, with the approval that we have of what we need to complete in 2011. The only way that changes is if there are considerable more dollars invested in the CapEx related to the Wireless business for the back half of the year, which we don't know. We're expecting solid growth in the business in the back end because even at the first half numbers, it's nice growth in the second half. We're not expecting a very back end skewed year in the Wireless business.

Thanks for taking my questions, guys. I'll get back in queue. Thank you.

We'll go next to Noelle Dilts with Stifel Nicolaus.

Hi, good morning, and congratulations on another nice quarter.

Thank you, good morning.

I was hoping you could give us a little bit of clarity on your orders. It looks like orders were for one billion in the quarter. And I was hoping you could give us an indication of how much of that was acquired? And then if that includes the AT&T generation win, as well?

Couple of things -- on the acquisitions that we did during the quarter, we didn't include Halsted in the backlog calculation because it was closed right at June 30th. We'll include that in the third quarter. The two smaller acquisitions that we closed really didn't impact backlog in any meaningful way. EC Source, which we had previously talked about at the beginning of the year -- in the first quarter, we added 18 months worth of backlogs for them, what they currently have in contracts. So that did affect, somewhat, the backlog numbers from a Q1 to a Q2 comparison. And Fabcor, which was the other acquisition that we closed in the second quarter, which we talked about in our first quarter call, added a little bit to backlog. But again, not a very meaningful number.

Truly, most of the growth in backlog was organic. One of the comments that we did make on the call was that our Pipeline backlog today is actually just greater than where it was at this time last year. The reason we think that's important because at this time last year, virtually the entire Ruby project was in backlog. So for us to not just have, not just completed the Ruby backlog -- the Ruby project, but more importantly, filled that backlog back up to where it was prior to the Ruby job, we think is a huge feat. Now, some of that work will be longer in nature than Ruby. Ruby was a six to nine month project. Some of the backlog embedded in our Pipeline business today is 12 to 18 months, but it's definitely a great sign. I think acquisitions were probably, if I had to guess, somewhere around $150 million of the backlog increase.

Okay, great. And then the 750 megawatts of wind work that you indicated -- you looked like you've won. Is any of that included in the backlog?

The answer is most of it is not because it was not a fully signed contract by the end of the quarter. But approximately a couple hundred megawatts were included.

Okay, great. And then my second question is -- on your revenue guidance, I'm just hoping to get a little bit more granularity. You're looking at a pretty solid sequential uptick, but you have got a lot of the Ruby project rolling off. Can you just talk about some of the moving pieces there sequentially; what you're expecting, in terms of -- if you're looking at what typically drives your seasonal uptick in the third quarter, it's the Wireless. If you're looking at flattish Wireless, what are some of the other pieces that you're looking at really picking up in the third quarter?

So, two things. One, as it relates to Wireless; we're not saying that Wireless is going to be flattish with last year, we're saying that Wireless is going to be flattish with the first half of this year. So we actually expect significant growth in the Wireless business in Q3 over Q3 last year. That will drive -- when we talk about 24% growth to 23% growth in Q3 over last year, some of that is definitely driven by Wireless.

Our Pipeline business, even though we won't be predominantly on the Ruby project, we actually expect a very good third quarter. Ruby was a smaller number in Q3 last year than it was in Q4. And we actually are expecting a very good pipeline finish to the year, each though we don't have Ruby. And I think that the other variable in there that was not in last year's number that is in this year's number is EC Source, which is obviously helping the back end of the year as those Transmission projects kick in.

All right, thanks.

We'll hear next from John Rogers with D.A. Davidson.

Hi, good morning.

Hey, John, how are you?

I'm good. Congratulations as well. I don't know whether you can share this, but could you give us a sense to what backlog looks like? By your reporting segments, anyway -- or your revenue segments?

John, we haven't provided that. It's something that we're looking at potentially providing here very soon, in future quarters, but we actually don't have that handy.

Maybe ask it a different way. In terms of your business going forward, Jose, traditionally it looks like the MSA work has been about 55%, 60% of revenue and discreet projects the remainder. Is that -- especially to go out into 2012 and looking at the Pipeline, the Transmission work; is that going to change?

John, quite frankly, we hope it does. We're still in the 55% range of MSA. We're always go to be -- to have a high percentage of MSA, because a number of our large businesses are MSA driven. So when you look at our Wireless business, our DirecTV business, they're MSA contracts. And they're so large that they obviously help drive that MSA number. And our MSA is always going to be a significant piece. As our project work continues to grow in the future, project continues to become a bigger piece, as it has over the last couple of years. And we do expect, as a percentage of our business, projects to pick up. We don't think it's going to be 70% or 80% projects either, but it will grow from where it is today.

And the project business gives you a little bit higher margin than the MSA, but a little more volatility; is that fair, quarter-to-quarter?

It depends on the industry. We have some MSA business areas that do really well. So I don't know now that you can make a general statement like that. You can you say that, obviously within the Transmission and the Pipeline business, a lot of that project work is above our Company average margins. So to the extent that those are the type of projects that you're growing your backlog with, that's obviously very good.

Okay, appreciate the color.

All right. Thank you, John.

Our next question comes from Veny Aleksandrov with Pritchard.

Good morning, guys. Good quarter.

Hi, thank you.

My first question is -- and you briefly mentioned, but I just want to make sure; how much growth from the acquisition that you guys made in Q1 and Q2 are you factoring in your forecast -- in your guidance for 2011, if any?

If you look at the acquisitions that we made, post Q1 -- because we talked about a few of the acquisitions in the first quarter and really because they had already closed at the time of our last call or were in the process of closing. So some of those -- for example, EC Source has really been in our guidance since we issued guidance the first time in 2011, because we knew we were going to exercise the option. If you take the acquisitions that we really hadn't talked or the ones that we closed and disclosed after the first quarter call, I think annual revenues for those entities are somewhere in the range of about $100 million. And we've taken, you could say, $45 million to $50 million for the balance of the year and included that.

Thank you. And then my second question is on the Pipeline business and geography of the shales. Are you working to expand new areas? And are there indications from clients that there is sufficient interest in new areas, where you're not present?

Absolutely. And I think we did discuss that a little bit on our first quarter call. For example, we now have a presence in the Bakkan shale. We have a physical presence that we opened earlier this year. We think that that's going to be a great area of opportunity for us. As the different shales have really expanded and opened up, we've been there, we've been there early. Which is why, I think, we've been so successful. So yes, we will work hard to expand on all new shales and all shales that are being developed further, both in the US and Canada.

Thank you so much.

Thank you, Veny.

We'll go next to William Bremer with Maxim Group.

Good morning, gentlemen.

Good morning, Bill.

I was wondering if you could provide some color on the Pipeline business? Besides, and we all know that a lot of large scale pipelines are constantly getting deferred for regulatory issues, and you're doing quite well with the base hit, smaller type traunches there. Could this potentially lead to maintenance services, longer term, for our underlying business? Of course you're setting up some localized -- almost like a QRC-type facilities to service them?

Absolutely. We haven't really discussed it -- made a big deal of it. It has a potential of being a very large opportunity. A lot of it has do with, ultimately, regulation and what are the providers ultimately responsible for doing on their existing pipelines? And how much is that really enforced? And I think that's what's going to drive the business long-term. I absolutely think that it's going to happen. The question is when? Are we going see that next year, two years, five years? We've been more cautious in talking about it until we start to seeing that type of work move the needle.

Also, backlog -- quite impressive. Can you give us some color regarding the pricing of that backlog? And by segment, how has it been, say, over the first quarter? And how has it been, say, year-over-year?

We talked a little bit about it if our first quarter call. I think when you look at late 2010, early 2011, we were kind of seeing stabilized prices. We weren't necessarily seeing big reductions in pricing, but we weren't seeing big increase in pricing either. We're still confident and hopeful that, as the capacity continues to get eaten up in some of these different industries, we're going to be afforded the opportunity to slowly raise our prices. But quite frankly, I don't think we've really seen that in any meaningful way, yet.

Jose, have you had to renegotiate any backlog type pricing because of capacity issues?

No.

Okay. And can you give us a figure on what did Precision -- what was their contribution to the second quarter?

We don't break out the different business units from a revenue prospective or a margin prospective. I think what we did say is that the Ruby pipeline was about $88 million of our quarterly revenue. Obviously, Precision does do a lot of shale work so that was not their revenue. But the Ruby job was $88 million.

Our next question comes from Theodore O'Neill with Wunderlich Securities.

Thank you. Jose, you've done so well in the Pipeline side of the business, I'm wondering what your limitations are there, in terms of getting even more market share? And if there's a CapEx impact for that?

Our philosophy is, we're going try to chase every project that makes sense that we can handle from a quality of workmanship and an issue of safety of our people. And we're definitely growing our resources. We talked about adding 2,400 people over the course of the last three months. A large number of that was in our Pipeline business, so we are rapidly expanding that business. And we hope that, over time, we continue to build that business. We think there's going to be great opportunities. We think we're really just seeing the beginning of what will be a big shift to natural gas, anyway, as another source of energy. So we think we're in the very early stages of what's going to be a long-term build-out.

CapEx -- to the extent that we're very successful, yes, it does have an impact on CapEx. I think that's part of the reason that we're probably sending a little bit more this year than we have in years prior. We're very bullish about where we think that business can go. So we're, to some extent, we're going to be wise about our purchases, but if the work shows up, we're going to go out and get the equipment necessary to execute on that. Yes, it does drive CapEx a little bit. We feel very good about our capacity to continue to grow that business. And what our capabilities are, in terms of getting a lot larger than we are today in that business. And our intent is to execute on that.

Thanks very much.

Thank you, Theo.

We'll go next to Liam Burke with Janney Capital Markets.

Good morning, Jose.

Good morning, Liam, how are you?

I'm fine, thank you. You mentioned that you had to staff up pretty precipitously on the Wireless side with the demand ramping so quickly. Have you had any problems, in terms of learning curve with the new personnel, in terms of additional expense? Or extended intervals on your installation commitments?

So I think that what we've been saying, on this call is, there's no question we had inefficiencies, if that's the question. When you hire that many people, you go through a process of training, go through a process of them learning, they may be very qualified, but they have to learn how to do the work in the manner in which you're doing it and your customer wants you to do it. There's no question that those hires that we made during the quarter were not as efficient as we hoped they can ultimately be or that we would expect. Our customer has been very vocal about their issues and their network, and the amount of money they're investing in their networks to make their network the best in the world. And we're really trying to help them do that. And to the extend that they feel they need to accelerate that and get certain sites up quicker than others, we've been very accommodating.

Thank you, Jose.

Thank you, Liam.

Our next question comes from the Adam that Thalhimer with BB&T Capital Markets.

Hi, good morning, guys. Your backlog is up 30% year-over-year, your Pipeline backlog is flat, year-over-year -- which is no small feat, in this environment. Your share count is down, you've done a good job managing SG&A. Is there a scenario where EPS can be up, year-over-year, in the back half of the year?

It's not what we're guiding to. I think large projects, obviously, have large impact. So to the extent that we were rewarded an onslaught of large projects, and we're able to complete enough work in the final part of the year, then you can obviously do better. I don't think that's our expectation today. I think what we've learned over the last couple of years is that projects have a life of their own. And they end up taking a little bit longer than you would hope to kick off. And I think we've built that into our models.

Okay, then I wanted to ask quickly about free cash flow it dipped negative this quarter. Bob, maybe you can talk about your expectations for cash flow in the back half of the year?

As we commented, we had -- frankly, in addition to the revenue growth, we had more than proportionate growth in receivables. That's how we got to 70 days. Everyday is worth over $8 million in cash to us. Currently, about what we're willing to say at this point is, we'll be back in the 60s. But what I said was that I didn't see getting down to 60. So we will get some pick-up in the second half of the year on the receivables front. The worse may be over, in terms of inventory build. We had a lot of wireless inventory build, some of it with LTE build and that may subside. We're going to have better cash flow in the second half of the year, primarily due to the lower AR and maybe lower inventory.

That's what I wanted to hear, thanks.

Actually in addition to that, most of the earn-out payments -- almost all of them have been made for the year. Yes, cash flow will be period of time.

Our final question comes from Peter Cheng with Credit Suisse.

Hi, thanks for allowing me to squeeze one more in. I just had a question on Q4 implied revenues and why they're lower year-over-year, especially since we've got EC Source in there, some other acquisitions. The Pipeline business remains solid despite -- and I understand there's no Ruby any more -- but it sounds like backlog is solid -- or flat compared, to where it was last year. Wireless should be up year-over-year. Is there something we're missing? I know Renewables is supposed to be weak. But is there something like, is DirecTV the other bogie? Or is there a level of conservatism baked in?

A couple of things. I think that if you look at implied guidance, it's not down, but it's flat. If you look at our what our Q4 implied guidance versus last year; Q4 of 2010 included $155 million of Ruby revenue, which is a big number. Obviously, it was at the peak of the Ruby job. And I think, based on that -- and we're going to make up that entire Ruby job revenue for Q4 of 2010 and 2011. And again, I think we've talked a lot about the things that we haven't put into any Q4 guidance that could potentially be upside. So we'll see what happens.

Fair enough. Thanks, guys.

All right. Thank you.

And we have no further questions in the queue.

Again, we'd like to thank everybody who supported us and shown interest in the call today. We look forward to our Q3 earnings announcement and being able to update you again on our business. We'll talk then. Thank you.

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