MasTec Inc (MTZ) 2011 Q3 法說會逐字稿

Welcome to MasTec's third-quarter 2011 earnings conference call initially broadcast on November 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, Jenny. Good morning, everyone, welcome to MasTec'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 may make certain statements that are forward-looking, such as statements regarding MasTec's future plans, results and anticipated trends in the industries where we operate.

These forward-looking statements are the Company's expectations on the day of the initial broadcast of this conference call, and the Company will make no effort to update these expectations based on subsequent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press releases and filings with the Securities and Exchange Commission. Should one or more of these risk or uncertainties materialize or should any of our underlying assumptions prove incorrect, actually results may differ significantly from these which were expressed or implied in these communications.

In addition, we may use certain non-GAAP financial measures in this conference call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release or related SEC filings or on the Investor Relations section of our website at mastec.com.

With us today we have Jose Mas, our Chief Executive Officer, and Bob Campbell, our Vice President and Chief Financial Officer. Format of the call will be opening remarks and announced by Jose followed by a financial review from Bob. These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes. 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 third quarter call. Today I will be reviewing our third-quarter results, providing my outlook for the markets we served and providing color on both fourth-quarter and 2012 guidance.

First some third-quarter highlights. Revenue for the quarter was $865 million, a 37% increase over the prior-year's quarter. EBITDA was $80 million compared with $73 million in the prior-year's quarter. EPS was $0.36 versus $0.35 in last year's third quarter. Net income was $32 million versus $30 million last year. Backlog was up nicely to $3.1 billion, our highest level ever and the bid and project pipeline remains strong which I'll cover letter.

During the third quarter, we again demonstrated our ability to grow the Company by posting another quarter of year-over-year revenue growth at 37%. This now marks 7 consecutive quarters where our year-over-year quarterly revenue growth rate has exceeded 28%.

During the third quarter our growth was broad-based. On year-over-year quarterly basis, our pipeline revenues grew 57%. That's despite have been significantly less revenue from the Ruby Pipeline on a year-over-year basis. Our wireline business -- our wireless business grew 49%. Our install-to-the-home business grew 35%. Our telecommunications wireline and electrical distribution business grew 24% and our transmission and substation business grew 262%. This was offset by a decline in our renewables business of 47%.

We are very pleased with our ability to grow revenues and how we have positioned the Company to take advantage of the opportunities in multiple end markets. We are seeing and believe we will continue to see an increase in the opportunities available to us in the markets we serve and we are very bullish about our ability to grow the Company over a sustained period of time.

While we are pleased with our growth, we are disappointed by our margin performance in the third quarter. Although we achieved our earnings guidance numbers, performance could have and should have been much better.

EBITDA margins were lower than expected primarily for 2 reasons. First, severe rain, floods and ground saturation in Pennsylvania and West Virginia have had a significant impact on our ability to perform work on 3 major contracts in the Marcellus Shale. This negatively impacted margins in our pipeline business by about 250 basis points. Unfortunately, the conditions have not improved and we expect this to have an even greater impact in the fourth quarter. We'll discuss that later.

Second, our wireless margins were lower than expected as we had very aggressive construction milestones that we needed to achieve for our primary customer during the third quarter. Although we turned in a solid performance, it came at the expense of margins. Wireless margins were negatively impacted by about 300 basis points. Again, while we're pleased with our growth and performance in the third quarter, we can perform much better from a margin perspective.

Now I would like cover some industry specifics. Our communications revenue grew 37% over last year's third quarter to $477 million. This increase was driven by double-digit growth in all of our Communications markets, including install-to-the-home, wireline and wireless. In our Install-to-the-home business, revenue from DIRECTV was up 17% organically or up 35%, including our recent Halsted acquisition.

Halsted was a service provider for DIRECTV covering portions of the Northeast that we acquired in late June. The integration of this acquisition into our existing DIRECTV business is progressing ahead of schedule and we expect to see significant improvement in Halsted's results in 2012.

Our wireline business experienced another strong quarter with solid double-digit growth. Stimulus awards have continued to increase and the pipeline of project remains strong. We have received almost $130 million of contract awards to date and are currently negotiating final contracts on approximately $80 million of additional projects. 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 up about 50% from a year ago. We were challenged during the quarter in meeting very aggressive build plans. In early 2011, the full-year build plan changed due to the T-Mobile acquisition announcement. Parts of the plan were deferred and others were accelerated, causing us to change the skill set requirements of our work force.

While we feel we are now better positioned than ever to take advantage of the growth opportunities in this business it is, it has come at a cost to margins in the short term. Based on the acceleration of this year's build plan and some uncertainty around the T-Mobile acquisition, we are expecting a decrease of about 20% in fourth-quarter revenues versus the third quarter for our primary customer in this market.

Despite the fourth-quarter slowdown, 2012 should be another very strong year for the wireless industry as the role out and expansion of 4G accelerates. We expect considerable growth in this market in 2012.

Now I would like to cover our utility business. Utility revenue grew by 38% over last year's third quarter to roughly $376 million. This increase was led by 57% growth in our pipeline unit and over 260% growth in transmission. These growth rates were partially offset by a 47% reduction in our renewable revenues. Our oil and gas pipeline business experienced year-over-year growth of 57%, despite lower year-over-year revenues from the Ruby Pipeline project. We did a great job of replacing backlog in the business and we entered the second half of the year with excellent revenue visibility.

We continue to enhance our market presence in the various shales. Over 70% of our pipeline revenues for the quarter were generated in shale basins across the country. The Marcellus Shale is a strong contributer to our business in an area where we are doing and have completed a substantial amount of work. Unfortunately, starting late in the third quarter we experienced severe rains and floods, which impacted a number of our projects, access roads and equipment yards.

As previously discussed, this had a negative impact on third-quarter revenues. Today, many of these areas remain saturated and under water. And on a number of projects we have suspended work until conditions improve. This is impacting both revenue and earnings in the fourth quarter. We expect to remobilize on these jobs in early 2012.

As it relates to our transmission and substation business, revenues were up due to our EC Source acquisition and strong organic growth of about 50% in our legacy transmission business. We've guided to approximately $200 million in transmission revenues in 2011, with about half of that coming from EC Source. The bid pipeline remains robust and includes a number of very large opportunities. The outlook for our electrical distribution business is strong.

Moving to renewables, 2011 continues to be challenging. Revenues for the quarter were down 46% year over year. The good news is that we have seen a dramatic change in anticipated activity levels for 2012. A number of large developers, traditional MasTec customers, are now significantly accelerating wind projects for late 2011 and 2012 to qualify for expiring tax credits. Based on signed contracts and verbally awarded projects, we will enter 2012, with the highest level of revenue backlog ever. We now have awards of approximately 1500 megawatts of wind for 2012.

Also, over the last 2 months, we've signed contracts and received verbal awards for $100 million of solar projects that will kick off in late December with 2012 completion dates. These awards represent more than 25 megawatts of solar construction. We're also very bullish on our industrial and power business for 2012 and beyond. We expect our renewable business to more than double revenues in 2012 compared to 2011.

I would now like to comment on fourth-quarter guidance. Most of our businesses are going to have a good fourth quarter profit-wise. But as we mentioned in our press release, we have margin challenges in 2 of our businesses -- pipeline and wireless. In pipeline, we have significant margin challenges related to 3 significant jobs in the Marcellus Shale Basin where severe rain and wet terrain are having a dramatic negative impact on our productivity and margins. Our Marcellus Pipeline operation had a brutal September after Hurricane Irene and Tropical Storm Lee.

Additionally, in the fourth quarter we have had continued severe rains and last weekend a major snowstorm. It will be a difficult quarter unless the Marcellus area dries out more than we expect. I view pipeline is mostly a productivity and margin problem even though we are having to deal with the utilization impact of a fourth-quarter $100 million sequential decrease in pipeline revenue.

In wireless, we now see fourth-quarter revenue as lower than we expected and down $40 million sequentially, which will clearly hurt utilization in margins. In addition, we are keeping extra people around to close out the work and be ready for what we believe will be a very strong 2012. The revenue and productivity challenges in these 2 businesses are having a negative impact on margins and we are now estimating fourth-quarter EBITDA margins at about 6.9% to 7.6%.

Again, we're disappointed of where we think we'll end up in Q4. However, we believe that visibility into 2012 is extremely high and we are very bullish on both our ability to continue to grow revenues as well as in our ability to improve margins. We expect double-digit organic revenue growth in 2012 and double-digit EBITDA margins.

Overall, the markets we serve are improving. There is an increasing number of broad-based opportunities available to us and we have never been in a better position to take advantage of that. I would now like to turn the call over to our CFO, Bob Campbell, for the financial review. Bob?

Thank you, Jose, and good morning. Today I'm going to cover 4 areas. Third-quarter financial results; fourth-quarter earnings guidance; cash flow and liquidity; and I have a few comments regarding our new bank credit facility. Once again we had another good quarter as a part of a very good year despite a challenging economic environment.

Before we start, I want to remind you that the second-quarter results included a gain from exercising our option to purchase the 67% of EC Source that we did not already own. Exercising this option resulted in a non-cash remeasurement gain related to our initial 33% investment in EC Source in 2010. The pretax gain was $29 million and $17.7 million after tax, or $0.20 per fully diluted share.

In order to have more meaningful year-over-year comparisons, I have excluded this $0.20 per share other income or gain item from all the earnings numbers in my remarks about either year to date or full-year results. Therefore, I will be discussing adjusted earnings figures which exclude the remeasurement gain. We have provided adjusted numbers in the tables attached to our press release and in our SEC filings.

Our Q3 highlights are as follows. Q3 revenue was $865 million, up $233 million or 37% versus last year. Q3 organic or non-acquisition revenue growth was up $119 million, or 19%, so we have now had double-digit organic growth for each of the last 6 quarters. Q3 EBITDA was $80 million, compared to $73 million a year ago, an increase of 10%, and year-to-date adjusted EBITDA is up 36%. Fully diluted earnings per share was $0.36 compared to $0.35 last year.

The Q3 story is about terrific revenue growth partially offset by challenged margins which I will cover later. Q3 was the 16 quarter in a row that we have matched or exceeded our guidance. We are trying to provide good information about how we are doing and what we expect to happen especially looking 1 quarter out.

Now for the Q3 details. First I'll cover our communications markets. Q3 communications revenue was up 37% compared to last year. Install-to-the-home revenue continues to surprise us with better than expected growth. Our Q3 revenue was up 35%, which included our Halsted acquisition which closed with a June 30 effective date. Our Q3 organic growth without the Halsted acquisition was 17%.

We have previously mentioned that Halsted was a fixer-upper and without much earnings contribution until 2012. However, we are encouraged by our progress in integrating Halsted and we expect to steadily improve Halsted margins during coming quarters and achieve margins approaching our legacy DIRECTV business by the end of next year.

Wireless revenue in Q3 was up $60 million, or 49% over last year, and Q3 was our highest revenue ever in wireless. 3G upgrade work was the largest part of our volume in Q3 and that will be true for the full year as well. Next year in 2012, 4G LTE work should be a bigger part of our volume, although we will still be doing a substantial amount of 3G work and normal maintenance, plus the new generator work.

We mentioned 2 quarters ago that we have won a large 35-state generator project, but there's very little Q3 and Q4 revenue related to the generators and the ramp-up really begins in 2012.

Our telecom wireline revenue and electrical distribution revenue were both up again in Q3. Both markets are handled by the same management team. That's the fourth quarter in a row that telecom wireline has been up and the third quarter that electrical distribution has been up. Broadband stimulus work was over $20 million in Q3.

Now I'll cover our utilities or power markets. Q3 for utilities was up 38% compared to last year. Q3 pipeline revenue in total grew 57% in the third quarter and the organic growth without the recent Canadian Fabcor acquisition was 33%.

As Jose mentioned, over 70% of our pipeline revenue was in the various shale basins especially in the Marcellus, Eagle Ford and Bakken Shale Basins. During Q3, we had major weather-related challenges in the Marcellus Shale Basin, with extraordinary amounts of rain, and we continue to have locations underwater. The resultant wet terrain has very negatively affected our revenue and especially our productivity in our margins. I'll talk more about Northeast weather effects when we talk about margins and guidance.

Our electrical transmission business is now showing excellent growth, more than tripling in Q3 over last year. The growth was a combination of better than 50% organic growth in our legacy business and the addition of EC Source revenue this year, where much of the revenue is coming from our large PacifiCorp project in Utah. In total, our transmission and substation revenue was up 262% from Q3 a year ago.

Renewables had a disappointing Q3, with revenue down 47% and with poor margins. Volume has been an issue all year for renewables. Jose mentioned significant amounts of new wind and solar work but most of it will happen next year. As Jose mentioned, we currently expect a banner year in 2012 for the renewables group given all the recent contract awards. For your information, what we call our renewables group also does power generation, industrial construction and oil and gas facilities work.

Q3 gross profit margin was a disappointing 13.9% versus 16.4% last year, primarily as a result of 2 significant factors. First, severe rain in the Northeast, which crushed our Marcellus Shale profitability and reduced our pipeline margins by an estimated 250 basis points. Second, inefficiencies in wireless related to achieving our primary customer's build plan which we estimate were a 200-basis-point drag on wireless margins.

We're not ready to give 2012 guidance today, but we do expect to bounce back to double-digit EBITDA margins in 2012 based on better margins in renewables, wireless and from our Halsted DIRECTV acquisition, and we don't expect a repeat of the horrendous Northeast Marcellus weather that we have had this year.

Q3 depreciation and amortization expense of $19.9 million was up $5.1 million from Q3 last year, reflecting higher CapEx and growth in fixed assets and higher intangibles amortization from the recent acquisitions. Depreciation and amortization as a percent of revenue held steady at 2.3%. Net interest expense for Q3 was $8.9 million compared to $7.3 million last year mostly due to the new $1.2 million of phantom, or non-cash interest costs, associated with our convertible note exchange. However, as a percent of revenue, interest dropped from 1.1% down to 1%.

Our Q3 G&A expense was $39 million compared to $31 million a year ago. As a percent of revenue, G&A dropped from 4.9% last year down to 4.6%. Our trend line regarding G&A has been very good. We have been improving as a percent of revenue for almost all of the last 15 quarters, with just a few of the quarters flat.

To summarize what happened in Q3, we had much higher than forecasted revenue and 19% organic growth, but much of the revenue increase was offset by lower gross margin, resulting from the factors that Jose and I have covered. I mentioned earlier a 10% increase in EBITDA for the quarter, and we had a 2.9% increase in fully diluted EPS. It is also worth noting that Q3 net income was up 6.1%.

For the third quarter of 2011, the 10 largest customers were DIRECTV, which was 25% of total revenue; AT&T 22% of total revenue; Talisman Energy 5%, that's Marcellus shale work; Energy Transfer Company 5%, that's Eagle Ford shale work; PacifiCorp 3%, that's an EC Source job in Utah; Dominion Virginia Power 3%, that's Marcellus shale work; El Paso Corporation 3%, the majority of that was the final revenue for the Ruby Pipeline project; Spectra Energy 3%, that's a Fabcor gas facilities job in Canada; DCP Midstream 2%, that's Eagle Ford shale work; EQT 2%, that's Marcellus Shale work.

Regarding diversification, our top 10 customers now include 1 satellite television customer, 1 telecom customer, 7 pipeline and gas facilities customers and 1 electrical transmission customer.

Let me talk for a minute about our revenue mix. We split our revenue into 2 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 Q3 that was 62% of total revenue. Second, we have revenue for one-time nonrecurring construction projects, and for Q3 that was 38% 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 in our 10-Q.

At September 30, our backlog was a record $3.1 billion and that's an 18-month backlog number. We're excited about our backlog growth and also about the contract signings and informal awards that we've had since September 30. The comparable backlog number for Q3 a year ago was $2.3 billion, and it was $2.9 billion last quarter. Please note that well over 50% of our revenue comes from master service agreements or similar contracts, and our backlog includes an estimate of the next 18 months of revenue for those contracts.

Now let me talk about our cash flow, liquidity and our new bank credit facility. Year-to-date net cash flow used for operating activities was $40 million compared to $101 million provided by operating activities a year ago. And at September 30, cash was $16 million and our liquidity was $477 million. A year ago cash was $120 million in our liquidity was $237 million. We define liquidity as net cash plus availability on our bank credit facility.

First, let me talk about our liquidity and then I'll cover the individual cash flow items. Liquidity is up dramatically because of a very large increase in availability coming from the new $600 million bank credit facility that we put in place in August. Availability from our credit facility at September 30 was $484 million, and that's dramatically more than the $136 million last year under the prior credit facility. The biggest use of cash this year was our growth in accounts receivable, which were up $289 million versus last year. Part of the increase in accounts receivables is due to our 42% growth in revenue this year.

In addition to the growth, our DSO, or accounts receivable days sales outstanding, have gone from 56 days at year end 2010 to 76 days at September 30, and every day is worth over $9 million to us. The December 2010 56-day DSO level was artificially low due to some unusually favorable payment terms on major projects that have since been completed and with 1 MSA customer where we have since had a slight unfavorable change in payment terms.

The biggest driver on the DSO increase this year has been our wireless business where we have had delays in closing out projects and getting billing approvals. We expect to clear out most of this billing backlog this year, but clearly a fair amount of the actual cash payments will come after 12/31. Therefore, we currently expect that year-end DSOs will be in the 70-day range, well above our 60-day long-term target.

Inventory is up about $37 million year to date and that's mostly wireless growth plus some growth for DIRECTV. Another significant cash item this year has been for acquisitions. We made 5 acquisitions in Q2 using $41 million in cash. Acquisition earn-out payments this year total about $45 million. We have now made all of the acquisition earn-out payments that we need to make this year.

We currently expect that next year's earn-outs will be significantly lower, in the $30 million range. Our 2 big earn-out payments historically have been for nsoro, our wireless business, and for DirectStar, our DIRECTV sales business. We bought out most of the nsoro earn out last December and we currently expect the DirectStar sale option will be exercised in the second quarter next year. The DirectStar sale option can be exercised at the sole discretion of our optionee.

We have had $57 million in capital expenditures year to date, the comparable year-to-date number last year was $23 million. The increase is primarily due to additional equipment for our Shale Basin pipeline work plus IT upgrade costs, especially for our wireless business. And then covering the CapEx needs for the 5 acquisitions we made in Q2.

There was some acceleration of CapEx this year to take advantage of the 100% bonus depreciation we get for 2011 expenditures. We are now raising our 2011 full-year CapEx estimate to $65 million. We were in the bank credit facility slightly at quarter end with $27 million outstanding, but we currently expect to be out of the revolver at year end via better collections.

In August we renewed our bank credit facility for 5 years, expanded it to a $600 million facility versus the $260 million facility and changed it from asset-based to a cash-flow type credit facility. The interest rate subject to a grid is LIBOR plus 200, the old deal was LIBOR plus 225. Covenants are more favorable than our prior deal. The unused line fee is now only 35 basis points, subject to a grid, compared to 75 basis points unused line fee in the old facility. So it's relatively inexpensive to carry a larger and at times unused facility.

During the third quarter we bought back a very small amount of stock and we also have bought back small amounts in the fourth quarter. You may see us buy back additional shares in the future.

As we noted in our press release, we have adjusted our fourth-quarter and full-year guidance. The change in guidance is primarily the result of 2 factors. 1, we will take another big earnings hit in Q4 related to continued rain in the Marcellus Shale and that's on top of the hit we took in Q3. Also we have recently seen a softer wireless revenue in Q4 than we previously expected with related margin impact plus we have the margin impact of the extra people for close-out work.

We now expect full-year revenue of $2.910 billion, adjusted EBITDA of $255 million to $260 million and adjusted fully diluted EPS of $1.04 to $1.07. 2011 revenue of $2.910 billion is an increase of 26% over $2.3 billion for 2010. 2011 adjusted EBITDA of $255 million to $260 million is an increase of 6% to 8% over $241 million a year ago. EBITDA margin from the full year will be between 8.8% and 8.9% versus 10.4% last year. Adjusted EPS of $1.04 to $1.07 compares to $1.05 last year. The tax rate on our adjusted earnings in our 2011 full-year guidance is 38.75%. The amortization of acquisition-related intangibles is about $14 million.

Now let me cover Q4 guidance. We expect Q4 revenue of about $675 million compared to $731 million last year. That's an 8% decrease and it reflects the Marcellus rain impact, lower than expected Q4 wireless volume, and tough comps related to a full-bore Ruby Pipeline project last year. We expect Q4 EBITDA of $46 million to $51 million compared to $88 million last year. We now expect fully diluted EPS of $0.12 to $0.15 compared to $0.44 last year.

Regarding share count for EPS purposes and the non-cash interest expense on our P&L, I suggest that you refer to footnotes 2 and footnote 9 in our 10-Q for details to our calculations. For your models, I would use about 90 million shares for Q4 and about 88 million shares for the full year of 2011. Please note that the share count can go up above the levels I just mentioned if our stock price continues to go up.

In summary, we had another good quarter in the midst of a soft economy and some very tough headwinds. We are encouraged by our organic or non-acquisition revenue growth and by our broad-based revenue and EBITDA growth trends. We expect that 2011 will be a good year, driven by full-year strength in wireless, pipeline, install-to-the-home for DIRECTV and electrical transmission. We believe the outlook for 2012 is clearly far better, especially regarding margins.

We are pleased with our backlog and also about subsequent contract signings and informal awards from our customers. And while we are not providing 2012 revenue and earnings guidance yet, we can say that we expect to see another year of double-digit organic revenue growth and a bounce back to double-digit EBITDA margins. That concludes my remarks, now let me turn the call back to the Conference Operator for the Q&A session.

(Operator Instructions) Andy Kaplowitz with Barclays Capital.

Jose, can you give us some more color on what's happening with AT&T both in 3Q and 4Q? Maybe how much of the lower guidance in 4Q was AT&T versus Marcellus in terms of EPS? It seems like more of it was Marcellus. And then you're visibility around AT&T spending in 4Q and in 2012?

Sure, Andy. I think when you look at 2011 on a full-year basis, we're going to end up having a great year in the wireless business from a revenue perspective, from a growth perspective, from the ability for us to meet our customers demands. We're obviously in this for the long term and I think we've positioned ourselves really really well for, what we think is going to be a great partnership for a long time to come.

When we look at Q3, in particular, it was a tough quarter for us. We had a lot of issues internally in terms of managing the work volume that we had. We were stressed. We've gone through now a couple of years of sustained growth, of dramatic growth.

We had again dramatic growth in Q3, and at times I feel it's almost the same thing we went through with DIRECTV a couple years back, where we were undergoing years of substantial growth, and we knew at the time that we weren't as efficient as we needed to be. And is that growth began to normalize, margins went up and they went up pretty dramatically.

And I think we're in the same place in the wireless business where we've really reacted to significant growth. We've thrown bodies at it to get through. And we're going to get to a point where that growth begins to, from a percentage basis, become more manageable and we're going to become a lot more efficient.

And I think we're closer to that today than I think we've ever been. I think we 're extremely well-positioned for the volumes that we expect for 2012. And I think this was a year, and not only meeting a tough 201,but in getting ready for what we think is going to be an even bigger 2012.

So, when we look at Q4, in general if you just -- if we were going to just round and throw some numbers on it, we see earnings in our wireless business probably down about $10 million, and in our pipeline business about $20 million. And that's pretty much the difference between where we think we will end up in Q4 versus where we had originally guided.

So, some of it in wireless, obviously, pipeline issues are much bigger issue. We've-- we're pretty much going to have substantially less volume there than we had expected. If you would've asked me a month and a half ago, I would have said that we we're going to have a blow out Q3 and a great Q4.

And even with the wireless issues that we had in Q3 that we knew about that we were living through, had we not had the issues at the Marcellus area for weather, we would have had a blowout quarter. So, two issues. I think we'll get through them. Again, I think were very bullish about 2012 and what we're seeing, and the volumes and the activity levels that we expect.

Jose, just to pressure you on that a little bit, I think the Marcellus stuff is pretty transitory. The wireless stuff, we heard from some other companies that AT&T had strangely pulled back a bit in spending.

I mean is this a MasTec problem, in the sense that you guys just had explosive growth, or was this that AT&T strangely pulled back little bit on you unexpectedly. I'm just trying to figure out sort of what happened, in that sense.

I think it's combination, but no question that we had problems, right. I think a lot of this is internal to MasTec, we had issues in terms of managing the business levels that we had in Q3. Those are internal issues. Those are MasTec issues that we need to fix, that we will fix that are completely within our control.

And I would say that that's the majority of it. In Q3, I mean, there was no AT&T issues in Q3, all of the Q3 issues were issues to MasTec. When we look at Q4, based on some of those issues that we had in Q3 that some of them will go into Q4. To some extent we've obviously staffed up for a different level of business, which is going to impact margins and utilization in Q4. The volume is lighter than we expected. There's a lot of work, I mean the work plan for 2012 is bigger than it was for 2011.

There's a lot of work that we're expecting to be released at any period and when it does, and when it is funded, we're going to be back at a pretty active levels. I think that they've had a big year, they've got a big CapEx spend and they're getting to the end of the year and I think they're managing it tighter than we've seen them manage it in the past.

Okay, it's seems like I've asked you the question in 3 parts, so I'll get back in queue. Thanks.

Thank you, Andy.

Peter Chang with Credit Suisse.

Hi, good morning, thanks for taking my question.

Good morning.

Jose, in the press release, you guys talk about significant subsequent awards to the close of September 30, and plus, you had a record backlog as of the quarter end. Can you talk about how that has grown?

It could probably help give us some greater visibility into 2012. And I appreciate you are not giving 2012 guidance yet, but double-digit organic growth, I mean, is there any more color around that comment that you can give us?

Well I think in our script we talked a lot about it. We believe that the renewable business will more than double in 2012 versus where was in 2011. A lot of that wind and solar business that we've been awarded here lately was not in our backlog numbers, so a good chunk of all that business is not currently reflected in the backlog numbers that we provided, because that was as of September 30.

We subsequently won a lot of work in those markets. And at the end of the day activity is strong. I think when-- the one thing about 2011, as we look back, we don't have a revenue issue. We can find revenue, we can win work, we think we've really repositioned ourselves in the industries that we serve.

And, I think, today we're a leader in the businesses, and we're not going to have an issue being awarded work. Our issues, as it relates to Q3 and Q4 is our ability to execute and our ability to get optimal margins and the margins we want, and that's what we're really focused on today.

Right, and that brings me to my follow-up question on 2012 EBITDA margins. They're going to be up in the double digits. I imagine pricing has got to be improving in the natural gas pipeline business, with the Keystone been awarded, assuming that moves forward.

DIRECTV is probably similar, assuming you fixed the issues with AT&T. And then transmission is going to be a larger part of your mix and that's a higher margin business. I mean 2012, is it feasible to expect margins to be higher than the peak that you guys saw in 2010?

Look, when we look at margins for 2011, again we're disappointed. We've got some room, we've got a call back in to get back to 2010 margins. When I look at the issues that we've had here at the end of Q3 and for Q4, they're not pricing issues. We don't believe that this is a pricing issue. We don't believe that this is contracts that we bid improperly, or we didn't bid with the right margins.

We don't think this is a market issue where prices have been driven down and we've had to lower our prices to continue to build backlog. We don't believe that's the case. We think that the issues that we faced in the last 3 or 4 months of this year are more related to specific issues that we think are a lot more fixable than having to deal with market pricing issues.

There's no question that the businesses that we've grown into over the course of the last few years, and where we think a substantial amount of our growth is going to come from, are better margin businesses which will ultimately drive up the margins of the total Company. Obviously, we're not any position to give 2012 guidance yet. But I thought, based on what we were going to say in both Q3 and about Q4 was important to give some color on 2012, at least where our minds are at and where we think we'll achieve.

And we put out when we say double-digit EBITDA margins and you can obviously imply 10%, we think we get there and we don't think it's that much of a tall order. But again, we're a lot lower than that in Q4, and we didn't deliver in Q3, so we got to get there.

All right, thanks, Jose. I appreciate it. I'll let somebody else get a chance, and jump back in queue.

Thank you.

Min Cho with Friedman Billings Ramsey.

Hi, Jose and Bob.

Hello, good morning, Min.

So, obviously, the Ruby Pipeline project is finished. Can you tell us if there was-- did the completion of the project result in any lingering expenses that had to be absorbed in the quarter?

No.

Okay, that was easy. Can you tell us how much of the backlog growth in the quarter came from the Halsted acquisition, since that was not included in the second quarter?

Min I'll get you that number here in a second. It was roughly $100 million.

Okay, that's what I figured. And then finally, I know you're not providing any specific guidance really, but for the first quarter, is usually a seasonally weak quarter for you. Do you expect that some of these issues that you're seeing in the fourth quarter could carry into the first quarter and exacerbate the normal seasonality across the board?

Right, because Marcellus-- because you're going to be going into pretty cold winter weather for the Marcellus, and given the unpredictability of AT&T right now, do you think there could be a continuing issue into the first quarter?

Min we don't think so. Obviously Q1 is a challenging quarter for us. We've got a lot of Ruby work that we did in Q1 of 2010, which will make Q1 of 2011 a more difficult comp.

So, I think we obviously have much better visibility as we look at all of 2012 then just looking at the first quarter. We know that our renewables business is going to be up substantially in Q1 versus where it was last year's Q1.

Based on the pipeline work that we've got in backlog and where we know we'll be able to work. This is not strictly a-- we don't have an issue working in the snow, we've got more of an issue working in areas that are flooded, right.

And that's more of the issue that we're having right now, the snow is actually not necessarily a bad thing, it might end up being a good thing as the ground hardens up. But there's no question that the snow does affect our business and it does affect where we can work in Q1.

So, we've got some businesses that we think will perform a lot better than they did in last year's Q1, and we've got others where we'll be challenged like in the pipeline business particularly because of the Ruby work. So, I think Q1 is going to be a decent quarter, not a great quarter, but I think we've got great visibility into 2012 and we think it's going to be a great year.

Okay. Thank you.

Thank you, Min.

Tahira Afzal with Keybanc.

Good morning, gentlemen.

Good morning, Tahira.

I was just going over the numbers that Bob gave earlier on, and correct me if I'm getting something wrong, but did you say that essentially from Marcellus and the wireless, your aggregate margin hit was over 500 basis points?

No, those were-- I think it was 250 basis points in the pipeline business, only in the pipeline business, not total Company, and 300 basis points in the wireless business, just for those businesses.

Okay, so --

So, aggregately in Q3 it was just over -- it was probably 120 basis points or so for the whole Company.

Okay, got it. Okay that makes much more sense. As we look into 2012, and you're qualitatively guiding us on how things look. Jose, given the issues we've seen in the third and fourth quarter, and all of your peers also susceptible to weather issues, is that guidance now sort of something that you're looking at with weather in mind?

Tahira, I think we've done a good job over the course of the last couple of years of doing what we say we're going to do. It's a very important part of how we think going forward is putting out numbers that we think are very achievable and I think we've demonstrated that over an extended period of time.

We're obviously very disappointed with the message that we're obviously putting out for Q4 and what it means. So, we've absolutely looked at not only Q4, but 2012 in a way in which we much rather be on calls where we're telling you how well we're doing and how we're beating the numbers that we put out, rather than having to explain why we're going to miss something. So, we've absolutely taken that into account.

Okay and Jose, you been very candid with us on this call and it's been very helpful. You've also expressed a lot of confidence that the productivity issues you essentially faced on the wireless side are going to be addressed. Could you provide us a little more color on how-- what you're doing internally to really address those issues, perhaps organizational changes or change in performance, incentives, et cetera?

So, I'll give you a little bit of color on that Tahira. We're obviously in the middle of a negotiation with AT&T, so I don't want to talk too much about the business in particular, other than to say we had our challenges. We had challenges in specific markets.

We know exactly the areas that we need to fix. We've taken very strong measures to improve that already. So, I think that if you looked at our full year, and as the quarter ramps, the business actually improves from the beginning of the quarter to the end of the fourth quarter.

So, I think they're very identifiable, things that we're doing that I think are going to have a direct impact to margins right away. And we've made a lot of changes internally in the organization that we think make that happen.

So, again, we-- some of the reason for our confidence and some of the reason that we think we can get back to the margins that we've historically achieved in that business are because we know exactly what the problems are we think the problems are fixable and we've already taken actions to fix them.

So it's not like we're having to identify what's going on, or are uncertain about what's happening, or not really sure how to fix them. We think we figured it out, we know what the problems are, and we've either addressed them, or are deep in the process of addressing them.

Theodore O'Neill with Wunderlich Securities.

Thank you very much. So, I was wondering if you could give us a little more color on the 2012, the 35-State generator work that you've got on tap?

Yes, so, we were awarded a project earlier this year. It's, obviously, a generator rollout project where we'll be installing generator on different cell sites. The project is estimated to be about a 4-year project.

It had a very slow kick off in 2011, we did some planning work around it. Work will accelerate into 2012 and then really start to build in 2013 and 2014. So 2012 is going to be much bigger year than 2011 in that project. 2013 gets bigger and 2014 and 2015 to stay strong.

Is this upgrades to existing generators that are there, or places where there's just not-- there isn't any kind of back up?

This is the-- well it's mostly the installation of generators on sites that didn't have them, although there are some replacements of existing generators.

Thank you.

Adam Thalhimer with BB&T Capital Markets.

Wanted to ask first on BlueFire. On Monday they announced Chinese financing. Are we getting closer to the point where you can put that $300 million contract into your backlog?

Well, it's obviously great news. We're excited for BlueFire. We continue to work with them very closely on what they're trying to do. It's a big piece of the puzzle.

They obviously still need their loan guarantees from the government. That process was obviously slowed down with what happened with Solyndra. We think they're making progress there. We think we're starting to see light at the end of the tunnel. Although the announcement on Monday doesn't necessarily make it a green light tomorrow, but it obviously makes it a lot closer to getting a green light. We are under contract on that project.

It is our project, we don't expect that project to be rebid. We've got a good relationship with them. We're working and helping them in every possible way we can to make that project become viable and come to fruition. And we feel better and better about it every day, and we're not going to put in the backlog until they got a green light, it's done, it's fully funded and we're ready to start work. But, we're a lot closer to that today than we were on our last call.

Good, thanks, Jose. And then I also wanted to ask about 2 smaller pieces of your business, but pieces that seem to be turning around, where the outlook has improved kind of for the first time in 3 years, wireline, communications and distribution. Qualitatively, how do you feel about those businesses as you look forward to 2012?

Well they're still businesses that are very challenged. When you look at maintenance spend per se, which is the predominant nature of those businesses have been, it's flat. When you look at historically those businesses were carried by new housing construction or the expansion of plant into new subdivisions.

That business still has not come back, so I think fundamentally they're businesses that are no longer in decline, which is good. They're businesses that aren't necessarily posting growth rates either, with the exception, of in the wireline business, you've got a pretty aggressive stimulus program out there in the rural side of the business, which is really driving the growth.

And we've been successful at it. I think there's a lot of work in the industry. I think that's what's going to drive that business in particular for the next couple of years. As housing comes, back both of those businesses will improve. But until housing does, we're not very bullish on that business outside of stimulus until the housing market comes back.

Thanks, Jose.

Thank you.

Noelle Dilts with Stifel Nicolaus.

Hi, good morning.

Good morning.

Going back to these, the lost-- or the troubled projects, I should say, in the Marcellus. Can you talk about the duration of these 3 projects, the original timeframe for them, and then, if any of them have entered a loss position?

So, the projects will-- 2 of the projects are fairly large in size, they're probably just under $100 million apiece. Those are projects in 1 instance we've actually completed a good amount of the work earlier as the year went on, and we are at a phase where we'll complete the second phase of that job, which is what we're working on.

Another one is more in a startup phase, which is why we're kind of pushing out and waiting until the weather in the construction period becomes better for us to be able to get on that job and finish it in a timely manner. Both of those projects should be complete, probably early to late second quarter. The third project is an important project for us.

It is more of an MSA type project where we get a lot of different work orders. We've been working for that customer for a very long time, it's a very large customer for us in that area. We've done very well with them over a long period, and we're just working on a couple projects right now that are challenged because of the weather.

From a loss position, we did-- the pipeline business had an excellent third quarter. Obviously, our issue isn't that it lost money, but rather we were expecting better margins than what it delivered, so it was more of a margin deterioration, not necessarily a loss position. On some of the projects that we're looking at in Q4, in one in particular, we do expect that project to be in a loss position unless something else changes, which is what we've guided to.

Okay. And then you've done a good job of shifting your pipeline work with the weakness in the long haul market in 2011 into the shale fields. But can you talk about what you're seeing in terms of these longer haul interstate pipeline opportunities in 2012?

Yes, so, I'd actually like to say 2 things about that. One is, I do think it's important to note that the majority of our pipeline business today is in the shale business. We've been working in shales all across the country. We've had tremendous success in the shales.

A good chunk, actually more than-- about half of our shale business was completely unaffected by weather and performed very well in Q3 and will perform very well in Q4. So, this is strictly a geographic issue on specifically related to the Marcellus Shale.

And again, we've had a lot of success in the Marcellus Shale in the past. We don't think it is pricing issue. So, we really think this is a short-term issue related to Marcellus.

As we look at long haul projects, which is obviously another piece of our business, we're very bullish on what's happening in 2012. There's a number of very large projects out there that we've been engaged in. We think we're going to have good success on that side of the business in 2012 and beyond, and we're again excited about that.

Okay and then one final question. Given the competitive pressures in the renewable market, are you-- with all this work you're booking now for next year, are you booking that work at better margins than you're currently seeing on the renewables projects, or is it still pretty competitive?

Renewables margins took a dip in 2010 going into 2011. It was -- obviously 2010 and 2011 were very difficult years in that market from a margin perspective. 2012 for the industry in general is going to be a banner year.

A lot of our competitors in that space that directly compete with us have very similar backlog build as we do, so there's a lot of work being awarded right now to a number of players. And pricing has dramatically improved in that business in the last 4 months.

Okay, great, thank you so much.

Liam Burke with Janney Capital Markets.

Good morning, Jose.

Good morning, Liam.

You had a nice step up in transmission, both organically and then with the EC Source project. How has the bidding activity been in that area?

It's been very good, and obviously, we've been able to grow our legacy business. A lot of that business that we do in our legacy business is shorter duration. There's a lot of book and burn, maybe a quarter or 2 out.

So, it's been a very active market. It's been a very good market, an improving market. From the large project perspective, there are a number of very large projects that are in the bidding cycle, so the funnel is extremely strong right now in both sides of that business.

Great, thank you, Jose.

Thank you.

[Alex Cook] with [Voyant Advisors].

Good morning. Could you guys speak about the increase in headcount, and were these employees fully utilized during the quarter? And how do you expect them to utilized going forward?

Sure, so we had a big head count spike in the second quarter. We hired a couple thousand people actually, going from Q1 to Q2. As we look at our Q3 headcount adds, it was much smaller, it was relatively flat. I think we added a couple hundred heads across the different businesses. When we look at our headcount adds, they're obviously in businesses that have shown dramatic growth, so a lot of the growth that we saw in Q3 we were able to achieve because of the headcount additions that we made in Q2.

We're obviously going to rationalize some of that as we look at Q3 and Q4. We had a lot of new bodies that hit the ground. Some of those ended up obviously been very good and some were somewhat inefficient, and we'll go to that, and hopefully, have a much better workforce as we look forward.

But we see -- we saw a spike based on the growth that we were going to expect in Q2 and Q3. And not atypical, that's the time of year where we go through a larger hiring time in our business.

We saw the same thing in 2010 from Q2 to Q3. We added about 1000 heads. So, it's not something that's atypical for us. Now it's about keeping the right ones and really being in a position to utilize our workforce at a much better level in 2012.

So, I guess if things do slowdown in 2012, how fast will you guys be able to reduce the headcount?

Well, the headcount is spread out amongst all of our different businesses. So, a couple things is we're obviously not expecting a slowdown in 2012. And again, we think we've got extremely good visibility. We've got growing backlog, for example, in our renewables business. That business will more than double next year, based on the backlog that we've got.

So, we've obviously been hiring in that business, and that head count in that business is up, and it's up so that we can meet the demands that we're going to have in 2012. In businesses where we might see a slowdown, we've got a lot of flexibility in what we can do with labor, and if for whatever reason we don't think that the growth is going to be there, we'll adjust our work force.

Veny Aleksandrov with Pritchard Capital Partners.

Hello, good morning, guys.

Good morning, Veny.

The one question that I have left, the 3 projects that are in the Marcellus, are you going to have any penalties because of the delays from the clients?

No, because at the end of the day we expect to meet the schedule, so we're just--

So, you do expect to be on schedule?

Yes, we do.

And if you're not on schedule, are there any penalties for delays in the contract?

I think in one there is. I don't think in the others there are. But the penalties are very small. So, we're actually not concerned about that at all.

Okay, thank you.

Thank you, Veny.

John Rogers with D.A. Davidson.

Hi, good morning.

Hello, good morning, John.

If we could just go back to the AT&T for a second. Jose, you had talked about the growth you saw in the third quarter but you also said we're going to-- you're going to be down $40 million sequentially in the fourth quarter. And I'm just trying to understand why your confidence that that business end is going to grow again in 2012?

Well I think we've got great visibility into that business. So, if we step back into 2010, right, we fully understood what their build plan was going to be for 2011. And if you go back to our original guidance that we provided at the end of 2010 from a wireless perspective and where we ended 2011, we'll actually beat that.

Now it accelerated, the plan was probably built in a shorter duration of the year then we expected, so where we expected to be able to do that build plan over 12-month period, that build plan accelerated, we did more of the work within the first 9 months. And really the expectation as we were working through that was, ultimately AT&T was going to allocate more capital to do a lot of the work that they had planned.

That necessarily hasn't happened. We do have a very good understanding of what their 2012 build plan is, and it's a lot bigger than what their 2011 build plan was. So, we've got very good visibility into the full-year outlook for AT&T. Exactly when they spend the money and how they role that out over the year is-- they're still determining that and figuring that out.

Obviously we would already love to be working on a lot of that in terms of starting a lot of the pre-work, which we're doing some, but not as much as we had hoped. And I think that's probably has a lot to do with where we expect the revenue to be down in Q3 and Q4, versus where we expected.

Okay. And is it your sense -- I mean I think it was last quarter or the quarter before, you talked about getting more work in new markets for you, up in the I think it was the Illinois area, is it your sense that you've kept your same market share with AT&T, expanded it, sort of where are you there? AT&T talks about these major contracts, I mean are you in the same market position that you've been with them previously, or has that changed at all?

No, we're in the same markets that we've been in all year. We had no changes to the market in Q3 and we'll have no changes to the market in Q4. Obviously we're in negotiations with AT&T on a new contract. That's not finalized, but we'll-- our expectation is that we have a great relationship with them.

We expect to continue to grow with them and we've been really trying to build the business with other customers, right. And I think we've had somewhat -- we've been somewhat successful with that. Obviously with the size of where AT&T has been, it doesn't show on the radar, but we're working for more customers today than we've traditionally worked for. We're working in different geographic areas. So, obviously part of it-- part of our expansion in wireless is outside of AT&T and with other customers, and we think the opportunities are there.

Okay. And I-- can you mention what those other customers are at this point, are they [in size] big enough to do that?

Well we've talked about our desire to grow with Verizon, I think we've made inroads there. We're doing more work for them then we've historically done, although obviously it is nowhere near the scale of an AT&T, so it doesn't necessarily show up on the radar.

I think it's very public out there what Sprint's plans are and they have awarded the project to more of the OEMs, and we've been working closely with them to break in and try to do more work with them. So, there's a lot of work out there, there's a lot of second tier customers that we're working for as well. So, just like we worked very hard on diversifying our overall business over the last couple of years, we're working hard at diversifying our business within wireless.

William Bremer.

From the Maxim Group. Good morning, gentlemen, Jose, Marc, Bob, Marc. Can you guys hear me?

Yes good morning, Bill.

Good morning. Okay, so my first question starts with, give us an update on your large scale transmission project, the Mona to Oquirrh transmission line, and idea of what you're currently operating now, in terms of capacity in that segment?

Well what we've said about it all along is that project is a bigger story for 2012 than it was for 2011. It will go in slightly into 2013. And the project is on schedule.

How many miles have you completed at this time?

Bill, we're not going to get into specific jobs and where we're at with them. Obviously there's a lot of customer issues with that and we're just not going to do it.

Okay. That's all it got, thank you.

Thank you, Bill.

Noelle Dilts with Stifel Nicolaus.

Hi, just a follow quick follow up. 1 on the renewal side- I'm sorry, on the wireless side, could you talk about how much of that work is outsourced at this point?

We're outsourcing about half of it.

Okay. And then-- okay, that's good. Thanks a lot.

All right, thank you.

And that does conclude the question-and-answer session. I'd now like to turn the conference back over to Jose Mas for any additional or closing remarks.

Yes, I'd just like to thank everybody for participating today. We look forward to our next call and providing a much better outlook on 2012. Thank you.

And again that does conclude today's conference. We thank you so much for your participation.