MasTec Inc (MTZ) 2012 Q3 法說會逐字稿

Welcome to MasTec's third-quarter 2012 earnings conference call initial broadcast on November 2, 2012. Let me remind participants that today's call is being recorded.

At this time I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Please go ahead, sir.

Thank you, Marquita. Good morning, everyone, and 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 results, plans and anticipated trends in the industries where we operate. These forward-looking statements are the Company's expectations on the day of the initial broadcast of this conference call, and the Company will make no effort to update these expectations based on subsequent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press releases and filings with the SEC. Should one or more of these risks or uncertainties materialize or should any of our assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications.

In today's call, we may also discuss certain adjusted financial metrics or use non-GAAP financial measures in our analyses. A reconciliation of any adjusted financial metrics or non-GAAP financial measures not reconciled by these comments to the most comparable GAAP financial measures can be found in our earnings press release, SEC filings or on the Investor Relations section of 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 analysis by Jose, followed by a financial review from Bob. These discussions will be followed by a Q&A answer period, and we expect the call to last about 60 minutes.

We have a lot of good news today, and I'd like to turn now over to Jose. Jose?

Thank you, Marc. Good morning, and welcome to MasTec's 2012 third-quarter call.

Today I will be reviewing our third quarter results, as well as providing my outlook for the markets we serve. Before we get started, on behalf of MasTec, I would like to offer our thoughts and prayers to all those affected by Hurricane Sandy, including our team members and partners in the area. We are praying for a speedy recovery. Also, before getting into the numbers, I'd like to cover two topics.

First, as discussed on our last quarterly call, we took a $9.6 million pretax charge for the settlement of litigation in Spain arising from a subsidiary we sold in 1998. And second, during the quarter we also made the decision to sell our small water and sewer subsidiary that has been struggling in recent years due in large part to the lack of financial resources available to municipalities and state governments throughout the country. My discussion of our third quarter numbers will exclude both of these.

Now some third-quarter highlights. Revenue for the quarter was $1.067 billion, a 31% increase over the prior year's third quarter. Adjusted EBITDA from continuing operations was $101 million, an increase of 31% over last year's third quarter. Adjusted earnings per share from continuing operations was $0.53, an increase of 51% from last year's third quarter. And cash flow from operations for the quarter was $119 million. In summary, we had another excellent quarter. I'm proud to say that revenues in this quarter exceeded the full-year revenues of 2007, my first year as MasTec CEO.

We have come a long way in five short years. More importantly, during that same period, earnings growth has outpaced revenue growth. While we enjoyed strong growth during the quarter, and our operational and financial performance continued to improve, the highlight of the quarter is the improving outlook for the markets that we serve and the long-term growth prospects for the Company. Our exposure to petroleum and natural gas pipelines and facilities, high voltage electrical transmission, wireless infrastructure construction, and construction of power generation sources should continue to be excellent sources of growth and opportunity for MasTec for years to come.

Now I'd like to cover some industry specifics, including recent trends and opportunities. Our communications revenue was $437 million, a slight increase over last year's third quarter. Our install to the home revenue was up 21% sequentially, and down slightly year-over-year. With our expansion into the Northeast last year, we now have a significant presence in a number of states impacted by Hurricane Sandy. Though to date, the storm has been very disruptive to this business, we will be supporting DirecTV and restoring service to their customers as quickly as possible. During the quarter, we also extended our contract with DirecTV until October of 2016. We are proud of our relationship with this important customer and appreciate their continued confidence in MasTec.

Our wireline revenue was up 16% for the quarter. The growth is being driven by the expansion of broadband and internet in rural markets, along with the improvement in the housing market and continued activity relating to providing fiber to wireless sites. Our wireless revenue was up sequentially, and down just under 5% year-over-year.

We have been working off of our full-year plan, and have performed as expected. We are committed to growing our customer base and have made considerable progress. During the third quarter, we were awarded significant LTE builds for two additional carriers. While we'll see some small revenue impact in 2012, the bulk of the revenues for these awards will be earned in 2013. We have also been asked by our largest customer to help in other regions across the country. At the beginning of the quarter, we were predominantly working in nine states.

Based on current awards, we expect to be working in 25 states in 2013. Mobile data demand continues to drive the need for investment in networks, and we are seeing a growing number of carriers with expansive LTE buildout plans, and thus, the increase in demand for our services. Our utility revenue was $627 million, up 68% for the third quarter of 2012 versus 2011. Revenues and performance in the electrical transmission and substation is strong. We expect full-year growth to exceed 50% from 2011. More importantly, we continue to expand our presence and win new high voltage work.

During the third quarter, we were awarded three significant projects. First, as discussed on our last call, we were awarded a 118-mile 345 kV transmission line in West Texas as part of the Crest project. Second, we were awarded a 54-mile, 500 kV transmission line project in Arizona. And third, we were awarded a 72-mile, 500 kV transmission line project in Pennsylvania by PP&L. Bidding activity for transmission projects remains very active, and we believe we are in a good competitive position for future awards.

Moving to power generation, which includes renewables, revenue for the quarter quadrupled those of last year. The growth is being driven by the strong demand for our wind farm construction services, the acceleration of our solar projects, and our entry into the gas generation space. We will have a record year in wind revenues in 2012. While we have been awarded wind projects for 2013, we do not expect 2013 levels to match those of 2012. The wind market will be challenged until there is a resolution to the tax credit environment available to wind developers.

We plan to help offset these declines in wind by our continued growth in solar and our expansion into the thermal power market. We have a number of significant opportunities in solar that we are bidding, and we should grow our solar business in 2013. Additionally, we were recently awarded the construction of a terminal station on the southern portion of the Keystone Pipeline, and we are actively working to grow that portion of our Business.

Shifting to pipelines, revenue was up 31% year-over-year and tracking ahead of expectations. We are now expecting pipeline revenues to approach $1 billion in 2012. We completed our two trouble projects during the quarter, and while we experienced some losses on those projects, margins improved nicely quarter-over-quarter.

We are also seeing a significant increase in large-diameter, long-haul pipeline opportunities. These long-haul opportunities, coupled with the continued strong demand in the different shale basins across the country, should result in more opportunities and better pricing for all pipeline contractors. We are confident in our ability to grow this market, and bidding is very active.

To recap, we're having a great year and we are really excited about the opportunities in the markets that we serve. Margins and margin improvement is our number one priority and we expect solid progress, targeting a return to double-digit margins in 2013. We are enjoying another record year of revenue and earnings, and believe that we are positioned to do it again in 2013.

I would now like to turn the call over to our CFO Bob Campbell. Bob?

Thank you, Jose, and good morning.

Today I'm going to cover third-quarter financial results, guidance for the rest of the year, and I will also cover cash flow liquidity in our capital structure. Before I start, I want to provide additional color on the two material third-quarter items that Jose mentioned in his opening remarks.

First, we have announced plans to sell our Small Water and Sewer business, which has struggled in recent years. The Company recorded a $15.3 million pretax charge in the quarter, reflected in discontinued operations, which includes the write-off of goodwill, the estimated loss and sale of the business, and losses from operations for the third quarter. The impact of this charge was $0.12 per diluted share for the third quarter. Second, we recorded a $9.6 million pretax charge related to a potential settlement of our legacy Sintel litigation taking place in Spain, which dates back to 2001. The impact of this charge was $0.07 per diluted share for the third quarter of 2012.

In my remarks about MasTec's third-quarter results, I will be referring to continuing operations' adjusted financial results, a non-GAAP measure. Without the discontinued operations numbers for our Water and Sewer business and without the charge for the potential Sintel litigation settlement. A reconciliation to GAAP-basis reported numbers can be found in our press release, in our 10-Q, and also on our website.

As Jose mentioned, we had another strong quarter. I'll go into details in a moment, but here are the Q3 headlines. Third-quarter revenue increased 31% over last year to a record $1.07 billion, and all of the growth was organic, without acquisitions. That's our first quarter ever with revenue over $1 billion. The revenue growth was led by significant growth in power generation and industrial, and in oil and gas pipeline and facilities. Continuing operations adjusted diluted earnings per share was $0.53 a share, and up 51% from the third quarter last year. Third-quarter continuing operations adjusted EBITDA was $101 million, compared to continuing operations EBITDA of $77 million last year. That's a 31% increase. Third-quarter cash flow provided by operations was $119 million, compared to a negative $68 million for the third quarter of 2011.

Now let me get into the details of our results. Q3 revenue was $1.07 billion, up 31% versus last year. The growth was lead by revenue from power generation and industrial projects, which quadrupled year-over-year. Next, revenue from oil and gas and pipeline and facilities projects was up 31% from 2011 from a broad-range of customers and locations. Mostly as a result of rural broadband stimulus spending, wireline communications was up 16% and electrical transmission increased by 7%.

Wireless revenue was down slightly from last year's record-breaking third quarter, and install to the home was roughly flat. Third-quarter costs of revenue, excluding depreciation and amortization, as a percent of revenue increased from 86.1% last year to 86.6% this year. Primarily due to higher material costs associated with our power generation and industrial projects, and higher costs on several oil and gas pipeline and facilities projects. Third-quarter G&A expense, depreciation and amortization expense, and interest expense as a percent of revenue all improved slightly versus last year.

For the third quarter of 2012, the ten largest customers were AT&T with 17% of total revenue and down from 23% last year, DirecTV was 16% of total revenue, down from 22% last year, Energy Transfer Company, a pipeline customer, was 8% of revenue. MidAmerican Energy was 6% of total revenue. Included in that number is our big electrical transmission project in Utah handled by Easy Source, and wind farm work handled by Wanzek Construction. Chesapeake and DCP Midstream, both pipeline customers, were 4% of revenue. Enbridge and Dominion Virginia Power, both pipeline customers, were 3%. And finally, two wind farm customers were also at 3%, Duke Energy and Anexco.

Regarding diversification, our top ten customers in Q3 include one telecom customer, one satellite television customer, five oil and gas customers, and one combined electrical transmission and wind farm customer. Also, we continue to reduce our customer concentration. Note that we no longer have any 20% customers.

At the end of the third quarter, our backlog was $3.3 billion compared to $3.1 billion at year-end 2011, and also $3.1 billion for Q2 2012. And all these numbers now exclude our discontinued operations, DirectStar, which was sold earlier this year, and our Small Water and Sewer business that we discontinued in Q3. Our book-to-burn ratio for Q3 was 1.2, which is pretty good. As always, I'm giving you an 18-month backlog number. Our backlog includes an estimate of the next 18 months of revenue from master service agreements and other similar contracts.

Now, let me talk about our cash flow, liquidity, and our balance sheet. Cash flow provided by operations was $119 million for the third quarter compared to a negative $68 million a year ago. Because of the strong Q3 cash flow, we were able to reduce the outstanding balance on our bank credit facility from $64 million at the end of Q2 down to $10 million at the end of Q3. And that was in a quarter in which we also repurchased $40 million of common stock.

Accounts receivables in total were down $13 million versus Q2, despite the 8% sequential year-over-year growth in revenue. Our accounts receivable day sales outstanding, or DSOs, were 75 days at quarter-end, down nicely from 82 days last quarter. While unbilled AR grew in the quarter, it was primarily driven by revenue growth. Retainage also grew in the quarter because we still have some significant projects near completion. And upon completion, we will be paid our retainage. Release of these retainage amounts should be a strong driver of cash generation, both in Q4 and also in Q1 2013.

And finally, we continue to make progress on our AT&T wireless receivables. We have improved our AT&T DSOs by 53 days since year-end 2011, including significant improvement in our unbilled receivables with them. Capital spending -- or, regarding capital spending, our year-to-date CapEx was $50 million. We are increasing our estimate for 2012 full-year CapEx to about $75 million. Our previous estimate was $65 million, but we now estimate greater spending to support anticipated electrical transmission, and oil and gas pipeline growth, and to take advantage of the 50% bonus tax depreciation that is available this year. Our estimated 2012 capital expenditures of about $75 million is slightly higher than the 2011 spending of $72 million.

Now, let me talk for a moment about our capital structure. As a quick capital structure summary at quarter-end, we had $816 million in equity, $453 million of total debt, only $443 million in net debt -- that's net of cash -- and we expect to have $325 million of 2012 continuing operations adjusted EBITDA. Therefore, all of our balance sheet and credit ratios are in very good shape.

I'd like to note three things about our capital structure. First, we have no significant debt maturities until '14, '16 and '17. And second, all of our debt has attractive interest rates and terms. And third, we have tremendous availability from our $600 million mostly unused bank credit facility. Availability from our new bank credit facility at quarter-end was $491 million. In the name of clarity, before I cover 2012 full-year and fourth-quarter guidance, let me cover explicitly and in detail what we have done to derive continuing operations adjusted numbers for 2012 and the comparative numbers for 2011.

In summary, there are three items that we're carving out of our 2012 earnings, and two items that we have adjusted out of our 2011 earnings. So, there are a total of five items impacting the numbers. First, in the second quarter of 2012, we sold DirectStar, our DirecTV marketing business, at essentially book value. And all prior-period earnings are now classified as discontinued operations. That means that our $325 million of 2012 EBITDA excludes the $6 million of EBITDA earned by DirectStar earlier this year.

Second, in the third quarter of 2012, we adopted a plan to sell our Small Water and Sewer business, and recorded a $15.3 million charge -- pretax charge -- in discontinued operations. We wrote off the water and sewer goodwill and wrote down all the assets for what we believe is fair value, for a $12.7 million charge. And we had $2.6 million in operating losses in Q3 for the Water and Sewer business. This business is also now classified as a discontinued operation and excluded, of course, from continuing operations numbers.

Third, and also in the third quarter of 2012, we booked a pretax reserve of $9.6 million for a potential settlement of our legacy Sintel litigation, which is taking place in Spain and dates back to 2001. Fourth, in the second quarter of 2011, we recognized a $29 million pretax remeasurement gain related to acquiring all of Easy Source, our electrical transmission large-project company. And fifth, in the fourth quarter of 2011, we recorded a $6 million pretax charge for the withdrawal liability caused by leaving one of the teamster's multi employer pension plans.

We believe that it is useful for our constituents to see our numbers for continuing operations only, and without the adjustment items that I just covered. We have reconciliations for all of these items to GAAP measures in yesterday's press release, in our 10-Q, and on the MasTec website in the Investor Relations section.

As I mentioned, we are adjusting full-year 2012 guidance. MasTec's 2012 guidance is revenue of $3.66 billion. Continuing operations adjusted EBITDA of $325 million and continuing operations adjusted diluted earnings per share of $1.50. That's 29% revenue growth, 33% growth in continuing operations adjusted EBITDA, and 55% growth in continuing operations adjusted diluted EPS.

Our 2012 full-year guidance assumes a tax rate of about 39%. Acquisition amortization expense is estimated at about $11 million for 2012, which is down from $14 million last year. Our estimate for full-year share count for fully diluted EPS is about 82 million shares. Remember that our share count for EPS purposes can fluctuate up and down with our stock price because of the accounting for our convertible notes. There is information about share count for EPS purposes in footnote 2 in our 10-Q. Fourth quarter 2012 guidance is revenue of $866 million, continuing operations EBITDA of $92 million, and continuing operations diluted earnings per share of $0.45.

One final comment about guidance. A number of our businesses operate in the areas affected by Hurricane Sandy. It is just too early today to determine the extent to which Hurricane Sandy could impact our fourth quarter results. Therefore, our guidance does not reflect any impact, either positive or negative, that might arise from the storm.

In summary, we had a good third quarter. We put a couple of troubling issues behind us in the quarter, and we currently expect to close out 2012 with a good final quarter. That concludes my remarks.

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

Thank you.

(Operator Instructions)

Alex Rygiel from FBR Capital Markets.

Congratulations on a great quarter and congratulations on achieving $1 billion in revenue. That's amazing for a quarterly basis. Since Sandy is so high on everybody's mind right now, unfortunately, can you touch upon both the positives and negatives that you expect to experience over the next month? And maybe identify each one of your end-markets that is experiencing either positives or negatives?

One of the things that's different for us probably more now than in the past is we do have a much larger presence in that area, in that geography, than we have traditionally have. Predominantly through our DirecTV business. We've got a lot of people in that market. We obviously got into that market last year through the acquisition of Halstead. So we cover a lot of the areas that are really mostly impacted by Sandy, mostly in that business.

So the first few days of the storm have obviously been very disruptive. We've got issues in terms of getting our people out and getting them working. And obviously, DirecTV needs power to work. As soon as power comes back, customers are going to find themselves without cable TV or satellite. And I think satellite has a real advantage in being able to come back on-air rather quickly once power is on. There really doesn't need to be a lot of line work and stuff like for cable TV companies.

In the past, at least in Florida, when we've had hurricanes years ago it's been a big opportunity for DirecTV to gain new customers and to try to bring people back to life as normal. And some of that involves being able to have TV, right? So we'll support them. And we've got a lot of people, we've got a lot of people on standby to move into that area as soon as power is back, to help them.

We obviously don't know what the impact to that business, positive or negative, will be. It's going to depend on power coming back and really understanding what kind of damage to people's satellite and roof there was in the market. When you look at our distribution and transmission businesses, we have a lot of people that have been deployed into the area.

We are supporting the electric companies from a power perspective. It's a big opportunity for us, obviously. And one that we participated in on past storms. I think this one's going to take a while, so I think there is a lot of opportunities for everybody in that business, unfortunately, to generate some extra revenues. We've got the pipeline work that we're doing in the Marcellus area that was slightly affected. None of our jobs were really impacted too badly.

We're trying to find areas of support there and ways of supporting the pipeline companies. We're talking to some of the federal government agencies about some of the opportunities. It's early. I think that everybody is worried about restoring power at this point. It's a tragedy. We've lived -- we obviously, we're from Miami so we've had to live with this for a long time. And I think we understand it well. And we'll be there to try to support whatever customers need us.

And secondly, your quarter was very strong. Your guidance for the fourth quarter also was very solid, but not necessarily higher. Given the very strong new awards in the quarter, any particular reason why you didn't raise guidance in the fourth quarter?

Well, a couple of reasons. First, when you -- have no Hurricane Sandy impact in our numbers because it's too early to tell. So we didn't adjust our fourth quarter at all based on the storm, positive or negative. We've got a decline of about 40% in our renewable business built into our fourth quarter, so a big chunk of the drop from Q3 to Q4 is really driven by the renewable projects that we've been working on all year.

And to some extent, from a margin perspective, it's very positive, right? Because that business runs at about half of the EBITDA margins of the rest of the business. So it's diluted to margins. It's outperformed all year. It outperformed in Q3 from a revenue perspective.

A lot of our revenue beat was associated to what was happening in renewables. So that's a good thing. And at the same time it's a bad thing because it depressed our margins a little bit. So you see a nice margin pick-up, some of it is really the change in mix in terms of renewables dropping in Q4 versus Q3. That's been expected.

We've had a phenomenal quarter in terms of wins, both in our wireless business and in our transmission business, and even in the pipeline business. But a lot of those, quite frankly, will have some start-up in the fourth quarter. But a lot of that is going to hit in 2013. Which, again, is -- from our perspective, gives us a lot more clarity into next year, and we feel great about going into 2013. But I don't see enough acceleration in those projects to have a big impact in the fourth quarter.

Very helpful, thank you. Great quarter.

Andrew Kaplowitz.

In the wireless business, I couldn't help noticing the comments you made about your largest customer and expansion and then the two new LTE customers. What does that mean as we go forward? 9 to 25 is a huge number. But at the same time, maybe you are just doing a little bit of work in these extra states. Is there any way to size the opportunity for us, even if it's not absolute specific numbers?

Well, first it's great news, no matter how you cut it. I think it does a lot of things for us. First, it truly makes us a nationwide provider in that space. I think, we have been viewed, unfortunately, as a very solid provider in certain geographic regions, but quite frankly, we weren't everywhere. We weren't in every state. We weren't in every geographic region.

And I think this changes that. If you look at the states that we're going to be working in next year, we pretty much have a presence throughout the whole country. And what it does is, it opens up the opportunity for multiple awards in those states by multiple customers. So it's a great business opportunity for us to continue to expand our wireless business. We're not going to have the level of activity in every one of those states that we have in our current nine. We're obviously a very dominant provider in the nine states we currently operate in.

And we're going to be building a presence in a lot of those markets, some faster than others. I think a lot of the future will depend on our ability to gear up in those states and really make a big presence. But the revenue opportunity that's provided to us is substantial. It's big. And it's going to be about our ability to execute how big that can get. But we're expecting very solid growth in that business in 2013.

2012 was somewhat of a year where there was a lot of challenges in the business. AT&T went through the T-Mobile acquisition issues of last year. It affected their spend for 2012. We have been living that all year. Our revenues are exactly where we expected them to be. So we've been working off the plan we've had all year. We have much better visibility into '13 in terms of what they're thinking and some of the other carriers. And again, we expect pretty strong growth in that business in '13.

Is it fair to say that you could do double-digit gain just on share gain itself? Is that something we can think about? Let's say AT&T was flat next year in your nine states.

I think it's absolutely an opportunity. Again, it's going to be about how we execute. But that level of opportunity exists with our existing customer.

Okay, fine, thanks, Jose. And if I could switch to transmission. Just maybe a little clarity, Bob, the PP&L award, was that last quarter or this quarter, 4Q, for the backlog?

It was right on the border. And it is not included in backlog.

Not included, okay, good. And then, if you look at the opportunities going forward, I mean, both PPL, PacificCorp, all these guys seem to have follow-up work or different lines that are going forward. Inevitably we need to ask you about capacity. But it seems like you've really got some momentum now. So can we see this continued momentum, especially from these customers that you're gaining traction on over the next 6 to 12 months? Should we expect more good news? Any more clarity?

Yes.

Alright. (laughter) That's good enough. Thank you.

Bill Bremer with Maxim Group.

Jose, you made a real nice comment this morning targeting double-digit margins in 2013. Can you provide a little more color on that? What's going to be driving that? When do you expect that run rate to hit?

We have a business that should be delivering double-digit EBITDA margins. We should be a business that's at at least 10% EBITDA margins. When you break our business apart, there's reasons that we have been challenged to get there this year. We've talked ad nauseum about our two troubled projects in Marcellus that affected the last part of last year and the earlier part of this year.

We had an unbelievable year in renewables, which again, was very positive from a growth perspective, but very dilutive to margins as the year went on. Again, those projects are running at about half of the margin of the total Company. So as the mix changes a little bit, as we look into 2013 with transmission and pipeline growing the way that we expect, and wireless growing the way we expect, and our power generation group, including renewables, really shrinking as a total size of the Company, the margin story becomes a lot nicer.

And we've been saying for a long time that '13 is the year that we expect to be at at least 10% EBITDA margins. That's the goal we're putting out there. That's the targeted goal. And we really think we can hit it. You back out renewable business for the quarter in total and we would have been at about 10.7% the rest of the business. We're still going to be in that business. But it does give a perspective on where the overall business is and the things that we need do to get our overall margins up.

Pipeline -- margins should have been a lot better this year. They're performing dramatically better now than they were last quarter, but we still have improvement there. So we're pretty excited about where the business is going, where it's headed, and our margin potential opportunity.

I just want to touch on pipeline a little bit right here. Precision -- can you give us an idea since that's primarily long-haul, how are you balancing that? Are you able to bring those individuals down to the shales and utilize some of those assets? And in addition, you mentioned that long haul. A lot of talks are happening. One of your competitors voiced that as well earlier this week. Give us some more color on long-haul.

Well, two things. I think, A, we have been in the shales since we have been in the pipeline business. A lot of the companies that we first acquired were shale businesses. And we have been very active in all of the major shales for years. I think that's really helped us. And it helped us as the long-haul market deteriorated a couple years back. And as we saw less work on the long-haul market, our shale business really grew.

And it's part of the reason that we've got close to a $1 billion pipeline business is because we've got so much work in the shales, because there isn't a lot of long-haul work today. That's changing. Precision used to be predominantly a long-haul pipe contractor that became a predominantly shale contractor because of what was happening in the market.

And the long-haul market is returning. We expect them to be a significant player in that market. There are a lot of opportunities for us. We're extremely bullish about that business just because it's going from very little activity to a lot of activity. And I think everybody in the space is going to enjoy that and really benefit from that.

With that said, the business in the shales isn't going anywhere. It's as active or more active than it's ever been. So when you add all the long-haul work that's coming with the existing shale work that's already there, there is going to be a significant strain on resources. Which is going to give the ability to every major pipeline contractor to A, win more work, and B, more importantly, really price the work better and hopefully, if you can execute and you can price it well, see much better margins than what the industry has seen in the last few years.

Great, Jose, thanks for the color.

Tahira Afzal with KeyBanc.

Thank you. before I ask my questions, Jose, as you said, five years ago there was a lot of scepticism when you made some radical changes. But many congratulations, because you have delivered. And Bob, same goes for you. I mean, the amount of work you've done on the financial controls in improving the balance sheet is sometimes perhaps lost. So many congratulations to both of you.

My first question is really a follow-up to something Andy asked earlier on. you've got the generator program happening with AT&T. You've got a very commendable regional expansion. If AT&T's wireless CapEx is flat next year, do you think from these market share gains and the generator program you could still see growth?

So a couple of things just to try to put that in perspective. A, the generator program for us is a program that we haven't really seen any activity under yet. Because through this year it's been unfunded. So while we were spending to do a lot of work in the generator program this year, it didn't come to fruition. I think we've talked about that on previous calls. It still hasn't.

I think that, unfortunately, Hurricane Sandy is bringing that a lot to light. There has been a lot of discussion. There was an article I believe in the Wall Street Journal yesterday specifically about generators and wireless towers. Which I think is very positive. The article talked about how the FCC was at one point considering mandating that to all the wireless carriers and it didn't happen. But obviously this is going to raise that again into the limelight. And I think it will be interesting to see what comes of it.

I think we are well-positioned, if that happens, to be a major participant in some type of rollout like that. So we'll see what comes from that. AT&T this year put out its CapEx forecast. I think they've talked about being maybe on the lower-end of that range. Again, and we have been saying it all year, they had a lot of unintended consequences happen from T-Mobile issues. And I think they're very active. They've got big plans. They're full steam ahead on LTE. And I think you will see it in their numbers next year.

That is helpful. My second question is in regards to Wanzek. I think all of us sometimes end up thinking of Wanzek as more of a wind contractor, while it is so much more. And, we have seen some big awards go Wanzek's way. As you look at the petro chem industry and, really, the huge exciting opportunity that's unfolding here in the US, and you started to see some orders come out. Can you talk about any prospects you have seen for Wanzek on the industrial and manufacturing side?

The win that we had with TransCanada on the Keystone pipeline for the terminal station is a huge win. It's a huge market that's going to open up a lot of opportunities for us with all of the different carriers and pipeline companies that are out there building. There is a lot of that that happens on every major line. And that happens to be a very significant project in terms of size and scale. And there are projects like that, and there are projects smaller than that that are really good.

So we've been in the process of repositioning Wanzek for a long time. When we bought them, they were primarily a wind contractor. Today we're doing so many more things out of that entity, including solar and the Peaker plants, and things associated with industrial and gas generation. So, it's a long process. It doesn't happen overnight. We've hired some really good people into that team. Over time it's going to look different. It's going to be a very different business a few years from now than the one that we bought a few years ago.

But I think we're doing all the right things. I think they have tremendous momentum and they're moving in the right direction and it's a matter of winning new work, expanding into new markets, gaining a reputation, gaining a foothold. And then growing, based on that. And I think we've done some of that. I think we've demonstrated some of that. But I think that, really, the opportunities and the success there is yet to come.

Thank you very much.

Noelle Dilts with Stifel Nicolaus.

Congratulations on the nice quarter. And keep me exciting. On the -- just addressing a couple other businesses that we haven't talked about so much yet. On the DTB side, you've seen a little bit of weakness in the last two quarters. Can you just give me your initial thoughts on going into '13 on that business? Maybe talk about what's driving some of the weakness, and if you expect that to persist next year.

We're tied to DirecTV in that business. And obviously the direction that they decide go on the things that they try to push are going to affect our business one way or the other. They've been very vocal this year about not necessarily being a year of customer additions, but rather a year of retention. And I think you'll see some of that next year as well. I expect to see a pretty good ramp in what they call upgrades, just based on what we're hearing from them.

And they're going to invest a lot of money into their existing customer base, and obviously try to solidify that to lessen the churn numbers. I think you're going to continue to see a similar number in terms of additions. So, we are right now a little bit bullish in terms of where we think that business goes versus this year.

I think they put the brakes a little bit in 2012. And you'll see maybe that improve a little bit in '13. But like in every one of our businesses, part of our job is to find out, what do we do with that workforce, and how do we find growth within the platform that we have? We've talked a lot about it in the past. We think security is a natural extension for us in that business. We're doing some trials with some people right now that are probably progressing a little bit better than others that we have done in the past.

So we're working hard at diversifying their customer base. And I think the real opportunity for growth in that business is our execution on that diversification. And when we find something that hits, that's going to be a very good story to tell in that business.

Okay, great. Then with the big transmission project wins, which again are very impressive. Can you just discuss -- I know you don't talk about margins, specifically, for each of your businesses. But can you just talk, on a relative basis what you're expecting in terms of margins? Are you expecting these projects to carry some more margins to your Mona to Oquirrh work? Are you seeing a little bit better pricing in the market? I'd appreciate your thoughts there.

Well, I think you can see it in the industry. The transmission business generally performs at higher margins than at least what we've been able to deliver as a total Company. Our transmission business has delivered higher margins than our total Company margins and we expect it to continue. So really, no changes with the work that we've been awarded. We expect it to outperform the rest -- really, our Company average-margins.

Okay, great, thank you.

Veny Aleksandrov with FIG Partners.

My first question is on the pipelines business. Apparently it's a huge business for you right now. And I just want to make sure that we understand. In the shales, we'll say that's nice to know there is an open business in the shales, but at the same time, the number of drilling pressure in the shales keeps decreasing, and everybody else is struggling there. So I just want to make sure that we understand the drivers, why your business is so strong on this pipeline side.

Well, I don't think you're hearing anything differently from any of our peers. Those that are involved in this business are very active. It's a very active period. Infrastructure in the different shales is still, to a great extent, nonexistent. There is a lot of work that needs to happen in the shales to have the infrastructure availability for people to be able to move whatever they're drilling out.

When you see some of the very successful shales, one of the things you'll find is that there is multiple levels of those shales. So you can be drilling for dry natural gas, you can be drilling for liquids. And we've seen a lot of movement of drills over the course of the last six months based on the different price of the different commodities. But we're seeing a lot of activity right now relative to pipelines. Our customers tell us as we go through their '13 thinking and budgeting and plans, and it's -- we think it's going to be a bigger year than '12. So for us, there is no end in sight. It's very active and we expect it to continue.

Thank you. And what's your geographic distribution on the pipeline business right now?

Well, the biggest shales for us are the Marcellus shale and that whole area, including Utica. And really in the Texas shales, and predominantly Eagle Ford. We are active in Bakken. We've worked in Haynesville. So it's really broad-based. There isn't a major shale that we're not either participating in or getting close to participate in.

Thank you so much. And one very short question on the [bankwell cow]. Or what percentage of that is pipelines for power generation?

Veny, we didn't provide that, and I don't think we have that here handy.

Okay, thanks. Thank you so much. Appreciate it.

Adam Thalhimer with BB&T Capital Markets.

Congrats on the nice quarter. Directionally speaking, all these wireless awards, congratulations on those. And what would you think that -- what would you expect the revenue growth rate to be in wireless next year? Just ballpark.

Well, it's never ballpark with you, right? You guys always want a number. But we'll -- look, I think it's going to be a great year. I think we're going to get to a really solid double-digit growth rate. And I know that double-digit growth rate doesn't give you a lot of guidance. But I don't think we're in a position to necessarily guide our wireless revenues for next year, other than to say, we're obviously going to be in a lot more territories, participating in a lot more jobs.

The opportunity is huge for us. And some of it's going to come down to execution and our ability to execute on those opportunities. But we've enjoyed enormous growth rates in the past in that business and, again, '12 has been somewhat of a slow-growth year. And we expect '13 to get back to a rather rapid acceleration again in the wireless business. But I don't have a number to give you today.

That's good, thanks. And then, I did want to ask about master service revenue. It is up sequentially, but down 15% year over year. Is that more of a mix shift or is there some weakness on the utility side of the business?

No, there is no weakness. I think it's definitely mix, right? As you grow transmission and pipelines, those are project-based and even the renewables, right? I mean, all of our renewable business is really project-based work, so because of the spike in renewables, revenue it's probably moving that number a little bit more than what we'll see next year.

Okay. And then just one more quick one on -- does government revenue go to zero now?

Pretty much.

Okay, great. Thank you very much.

John Rogers with DA Davidson.

First of all, just in terms of the revenue from the industrial and projects that you disclosed, the $200 million. Is that all pipeline and transmission in there?

No. I think that's our power generation renewable business. So that's mostly wind farm, solar, and industrial work that we're doing. Not transmission and not pipeline.

And not pipeline. Okay. I just want to make sure. And then you talked about the stepped-up capital spending. What is that for? Is it installation equipment?

I think that the message, or one of the messages today is we're seeing excellent acceleration in our transmission business. We feel that we're going see excellent acceleration in our pipeline business. Those are obviously capital-intensive businesses where we'll put a lot of iron on the ground. I didn't get the question, but I know it was alluded to earlier, in terms of capacity and our ability to manage to capacity.

One of the things in terms of being able to have the capacity to do a lot more work is having the right people, most importantly. And then obviously, the right equipment. And I think what you will see is us spend a little bit more on equipment in terms of what we guided to today. We're also going to look at the election. We're going to look at where we think the bonus depreciation rates are going. And we may look at that further as the year plays out, because the 50% bonus depreciation is somewhat of an important metric. And I think depending on the election, we'll have a much better feel where that's going to head. And based on that, we may look at things differently in Q4, or not.

Okay, that's what I was trying to get to. Is how much more capacity does this give you?

Well, it's only $10 million of additional CapEx, so it's not -- it's modest. But I think that obviously we'll start buying CapEx for 2013 as well. It's all going to depend on the wins, right? So if we keep winning at the rate that we've been winning, then we're going to need to spend more money. And that's a good thing.

Okay. And so, and your depreciation run rate now is what? Close to $23 million a quarter?

This quarter it was about $23 million. We expect it to go up slightly in Q4. And obviously as we keep buying new equipment, that's going to continue to increase. So I think, it was $23 million this quarter.

Right, okay, thank you.

Liam Burke with Janney Capital Markets.

On the SG&A front, it looked like you've got -- percent of sales came down a little bit. Will you be able to continue to get leverage off that line? And is that part of your assumption in how you're getting to the double-digit EBITDA goal?

Well, no. SG&A went up $4 million quarter over quarter. So it wasn't a significant jump. And we're not going to have enough movement in SG&A to have dramatic effects on margin. The quarterly jump was attributed somewhat to increased legal expenses, some of which pertain to our resolution of the Sintel matter in Spain. So we had about a $1 million increase in legal expenses quarter over quarter.

And then, based on the performance we've had, we actually approved more bonus in the third quarter than we had in the second quarter, which drove a couple million dollars more of SG&A on the wage side. So I don't think you're going to see huge dollar changes in SG&A from a pure dollar perspective as we go forward. And obviously, as the Company grows, we'll gain some mixed benefit to that. But I don't think that's the main -- that's not by any stretch of the imagination one of the main drivers in margin expansion.

Okay. And --

The real driver on the margin expansion is improvement of the gross margin line. And some of that's the mix from more pipeline and more transmission, and not having the drag of the Marcellus challenges this year. And the mixed blessing margin benefit, or the benefit of, frankly, less wind as we look to next year. So the G&A line as a percent of revenue is not going to -- we've come down dramatically over the last five years. And then we may still get some additional scale benefits, but the EBITDA margin improvement will be driven by gross profit, not G&A.

Okay, thank you. And on the wireline front, Jose, you mentioned stimulus being out there and the growth is still there. How do you see that going into 2013?

When I look at that business -- and you've got go back a few years. You've got go back into that '07 timeframe, '06, '08. that business was down from its peak by 40%, 50%, both in the distribution and wireline side. So those businesses were devastated by the housing crisis. I think you would see that with a lot of our peers, as well. And I think what the stimulus is going to end up doing is, really, bridging the gap between the time of the issues around the housing market to the housing market starting to come back.

So what we're seeing in both of those businesses today is that the housing market is improving. It's having some effect on those businesses, which is very positive. And, there is still a lot of stimulus work left that's probably going to go through '13. And I think that we're going to see a continued improvement in the housing market through '13, going into '14. I think at that point that the housing issue is going to really help those businesses.

And if you think about a lot of the houses that are starting, or the projects that are tied to housing that have started, a lot of them were projects that had been started by a developer, and they had stopped and they went back out and maybe the pads were poured. And in a lot of those cases, the utilities had already been taken to those subdivisions.

So a lot of the housing structure you're seeing today don't necessarily positively affect our business. It's when you start having greenfield communities that get built where it begins to really impact our business. And I think that's what we're going to start seeing over the course in the next year. And I think both of those businesses, the distribution and the wireline communication business, are going to be very positively impacted by that.

Great, thank you.

Noelle Dilts with Stifel Nicolaus.

Can you tell me how much revenue you did on those two troubled pipeline projects in the quarter?

About $25 million.

Okay. And then, can you just clarify, with AT&T asking you to participate in these expanded markets, are you participating as a secondary contractor? Or, how does that kind of fit into the contract structure that you have with AT&T?

So, we're being asked to participate in new markets. Obviously, the reason we're being asked is they're having issues completing their builds. And our hope and desire is to turn those opportunities into long-term plays for us.

Okay. And then on the industrials and renewables business. Can you just talk about, with wind coming off so significantly -- first, can you talk about the growth rate? I know you're expecting growth in solar, but maybe just talk about the number of projects you're seeing in the pipeline. And then just touch on how you're addressing resources in that business. Obviously you've ramped up both your labor and equipment to some extent to meet this bubble in 2012. With wind falling off, how are you thinking about reallocating those resources? And just addressing that significant decline?

Sure. So, a couple things. I think we'll see a reduction in our power generation revenues next year for sure. Because we won't be able to offset all of the wind decline with some of the other businesses. I think overall, as a Company, we'll offset them and we'll grow, but not necessarily within that business. But we'll make up some of it.

And I think that the biggest opportunities to make up some of that revenue shortfall for the time being is in solar. There is a lot of activity in the solar market. We've got a lot of bids outstanding for substantial amounts of money, which could really drive the business next year to -- in a very large way, right? So it could be very positive, or it could just offset some of the losses.

So the solar business is just active. A lot of projects, a lot of business. And I think we've done a good job this year of building that business, getting it better. So a lot of opportunities. We will continue to grow the other pieces of that business. So we feel real good that we're going to have a very sustainable business that's going to actually perform at better margins next year than it did this year. But no question, there is a decline.

From a resource perspective, one of the reasons we're having such margin challenges in that business is we didn't spend a lot of capital based on what we thought was going to be somewhat of a bubble year. So we're renting a lot of equipment, which is at a much higher expense, which is negatively affecting markets. But obviously, when projects are done you get rid of that equipment and you have no tail on those expenses.

And two, from a personnel perspective, which is a great question, we're actually doing everything we can to keep as many of those people within the organization. We have moved a lot of them into our wireless business. So a lot of those guys that were placing towers or climbing up the towers have now moved into our wireless business into similar-type roles, where I think they can be very successful and really help us in our competitive landscape within that business.

Perfect, thank you.

Tahira Afzal with KeyBanc.

So while you've been giving us all these new jigsaw pieces to the puzzle, I've been trying to piece them together for 2013. Last quarter you said revenues maybe would be flattish, maybe we might see low single-digit growth. And then if I take that alongside your double-digit EBITDA margin percentage, it seems difficult to come up with revenue growth of less than 20%, 25% for next year. Are there any things, any factors I need to think about for 2013 which would be offset? Thanks.

So, a couple things. A, we will see a decline. I do not think we're going to grow revenues at 20% next year. Because we have a significant decline in our power generation business that we'll see. So I don't want you to get -- I know you're excited, and so are we. But we've got a hill to climb from our power generation business. That business is going to do north of $600 million next year. And that business could be off $200 million next year.

We'll make that up with the rest of the businesses and we'll still have growth. We do strongly believe that. But last quarter we said we think we can grow the business in the mid single-digits from a total growth perspective, total Company, including the generation business. And we're going to stick to that for now. Obviously if we're successful in some of the solar opportunities that we're looking at, then maybe this whole conversation changes.

We will see nice growth in pipeline next year. We will see growth in transmission. And we will see growth in wireless. But again, we should see about a $200 million decline in our generation business, roughly. I think over the course of the last few years -- I know the flip side because it might be your next question -- we have beat revenues. We have consistently beat revenues. And our hope is to continue to beat revenues.

But at the same time we are laser-focused on margins. We have been saying we expect to get to double-digits. We have fallen short of that goal here as of late. And we need to get there. So for me, the story for 2013 is more about margins than revenue growth. It's about finally getting to our double-digit margins on some revenue growth. And when you start penciling out -- even that EBITDA. It's obviously a substantial increase in growth to EBITDA. So we're going to have, hopefully, significant EBITDA growth, even if we don't have significant revenue growth.

Great. That's actually very helpful. Thanks a lot, Jose.

At this time I'd like to turn the conference back over to Mr. Mas for any closing remarks.

Well again, our prayers are with everybody that has been affected by Hurricane Sandy. Hopefully, we can get through this rather quickly. Based on everything that's happened, we really appreciate everybody's participation. And we look forward to speaking again on our year-end call. So thank you very much.

And that concludes today's conference. We appreciate your participation.