MasTec Inc (MTZ) 2014 Q1 法說會逐字稿

Welcome to MasTec's first-quarter 2014 earnings call -- or conference call -- initially broadcast May 2, 2014. (Operator Instructions)

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

Thank you, Wes, and good morning, everyone. Welcome to MasTec's first-quarter 2014 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 several 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 underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications.

In today's remarks by management, we will be discussing continuing operations adjusted financial metrics as discussed and reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this 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 press release, our 10-Q, our 10-K, or in the investors and news sections of our website located at mastec.com.

With us today, we have Jose Mas, our Chief Executive Officer; and George Pita, our Executive VP and Chief Financial Officer. The format of the call will be opening remarks and analysis by Jose, followed by a financial review from George. These discussions will be followed by a Q&A and we expect the call to last about 60 minutes.

We have a lot of good things to talk about today, so I would now like to turn the call over to Jose. Jose?

Thanks, Marc. Good morning and welcome to MasTec's 2014 first-quarter call. Today I will be reviewing our first quarter results as well as providing my outlook for the markets we serve. First, some first-quarter highlights.

Revenue for the quarter was $964 million, a 5% increase over the prior year's first quarter. EBITDA was $75 million and earnings per share were $0.21. In summary, we had a solid quarter considering the significant challenges we faced relating to weather. Both revenues and margins were impacted as we were able to complete less work, and on many projects, the work we were able to perform had productivity and cleanup issues. That being said, we performed well and, more importantly, the outlook and demand for our services is excellent.

Over the last couple of years, we have made significant investments in both people and equipment to position us to take advantage of the growing opportunities in our oil and gas, transmission, and wireless markets. While these have been our main growth drivers, and we expect that to continue, we are seeing an improving landscape for the balance of our business.

Our power generation group is experiencing a solid uptick in wind-related business. Our installation business is experiencing strong growth in our security initiatives. And since our last call, only two months ago, there has been a significant amount of additional announcements by a number of carriers related to 1-gigabit high-speed connectivity for residential customers. The fiber deployment required for that initiative is a significant opportunity for MasTec.

Now I would like to cover some industry specifics. Our communications revenue for the quarter was $447 million versus $425 million last year. This was driven by a 27% increase in our wireless business offset by a decline in both our installation business and our wireline business.

Weather impacted both revenue growth and margins in all three of our communications markets. Our install-to-the-home revenue was down 9% year over year. We have significant exposure to the Northeast in this business and weather negatively impacted revenues. We expect revenue growth in this business in the second quarter and for the balance of the year.

We made a small acquisition subsequent to quarter end of a company called Speed Wire. Speed Wire is a broadband and security installation company that was also a leading Digital Life installation contractor. With our combined resources, we are now providing security services in 72 markets from 28 markets last quarter. We expect security revenues to approach $100 million in 2015.

We believe security is a natural extension of our capabilities and we are bullish on its long-term prospects. Security, coupled with in-home automation and energy efficiency, is a fragmented market. Our national reach and scale gives us a strong competitive advantage.

While wireline revenues for the quarter were down year over year, future prospects for that business are as good as we have seen in a long time. As a reminder, though wireline business is where MasTec actually began, recent announcements from multiple carriers about 1-gigabit speeds to residential customers will require a significant fiber expansion. Our history, experience, and geographic coverage make this a sizable opportunity for us.

While we don't expect significant revenues in 2014 related to 1-gigabit projects, we believe the revenue opportunity for 2015 and later will be significant in size and in scope.

Our wireless revenue was up 27% in the first quarter compared to last year's first quarter. We are benefiting from significant investments in our customers' networks. Technology enhancements like LTE, DAS, and small cells, coupled with network densification, creates growing opportunities for our business, both for short- and long-term growth.

We have invested and will continue to invest in the opening of new training facilities, the hiring and training of personnel, and the equipment and systems necessary to provide our customers with the resources they will need to complete their deployments and their growing maintenance needs in a cost effective, timely, and safe manner. Having these resources will be a key to the continued growth in our wireless business.

As we announced on our last call, we were recently awarded a contract to provide dedicated crews to our largest customer. That contract requires us to provide 212 crews by year end. We are in the process of ramping, and while short-term, this aggressive ramp will pressure margins. Longer-term, we are very bullish on our ability to deliver strong revenue growth with improving margins.

Subsequent to quarter end, we were also awarded a contract to provide dedicated crews in support of our second-largest wireless customer. While this award has taken longer than expected, and work for 2014 will start slightly later than we were expecting, this is a significant step in our ability to continue to diversify our wireless customer base.

Revenue in our electrical transmission business was $80 million versus $85 million in last year's first quarter. We had a number of large wins and in 2013, we were actually awarded one of the largest EPC contracts in the nation and the largest in our history. That project is beginning to ramp and will lead to solid revenue growth for the balance of the year.

Subsequent to quarter end, we were awarded the first major EPC substation project from the new Berkshire Hathaway Energy, which was formally known as MidAmerican Energy Holdings Company. This is a significant award because it demonstrates the continued confidence that Berkshire Hathaway Energy has in our transmission and substation team.

We continue to see a very strong bidding environment and we are confident in our ability to continue to deliver strong growth in this segment.

Moving to our power generation and industrial segment, revenue was $54 million in the first quarter versus $89 million in the prior year. EBITDA margin for this segment was slightly positive and a big improvement on a sequential basis. We are expecting a much-improved 2014 and 2015. We expect revenues in 2014 to be approximately $400 million, with EBITDA margins returning to 2012 levels. This implies an EBITDA swing of about $35 million for 2014.

Not included in quarter-end backlog is about $200 million in projects verbally awarded, a number of which we are already working under a limited notice to proceed.

Our oil and gas pipeline segment had revenues of $380 million for the first quarter compared to revenues of $319 million in last year's first quarter. EBITDA margin for this segment was 9.2% versus 13.3% in last year's first quarter. Again, results were impacted by weather. Our outlook for this market remains very bullish, as planned project activity for 2015 through 2018 far exceeds what we have seen in the past.

With an increased number of planned US pipelines, a market in Canada that is accelerating and probably a year or two behind the US in terms of activity, and a Mexican market that is going to see an unprecedented expansion of pipeline construction, the activity levels in North America create a perfect opportunity for us to enjoy strong growth rates well into the future.

For the second quarter, we expect strong revenue growth and EBITDA margins consistent with our full-year outlook. Keep in mind, in the second quarter of last year, oil and gas segment margins exceeded 17% due to mix and closeouts, making this next quarter a difficult comparison with respect to margins.

We would like to highlight two projects awarded to us during the first quarter. The first was a 160-mile portion of the Cactus Pipeline in Texas. The second project is a 24-inch pipeline that crosses the Rio Grande into Mexico. While not material in revenues, we believe this is an example of what will be a growing trend as Mexico's demand for US natural resources continues to increase.

Overall, we expect demand to challenge capacity in this segment and create opportunities for both increased utilization and improved pricing.

To recap, we are off to a good start. We have got strong backlog to support what we believe will be another record year of revenue and earnings. We are investing in our business for both short- and long-term growth. And quite frankly, we have never had the number or the quality of the opportunities we are now enjoying.

I would now like to turn the call over to our CFO, George Pita, for our financial review. George?

Thanks, Jose, and good morning, everyone. Today I will cover first-quarter financial results as well as Q2 and full-year guidance. I will also cover our cash flow, liquidity, and capital structure.

As in our previous calls, when we discuss our financial results and guidance, we will be discussing non-GAAP continuing operations adjusted earnings and EBITDA. Full reconciliations from GAAP results to adjusted results are included in our Form 10-Q and press release tables.

Consistent with prior quarters and for comparative purposes, our continuing operations adjusted results exclude the first-quarter 2013 loss on extinguishment of debt related to refinancing our senior notes due 2017, the final Sintel Spanish litigation charge recorded in 2013, and they also exclude non-cash stock-based compensation expense for all periods.

Before I get into detailed remarks, let me share a quick overview of our Q1 results and current 2014 expectations. As mentioned on the year-end call, and as I am sure many of you are well aware, we experienced difficult winter weather disruptions during January and February 2014, which were broad-based across the majority of the US and impacted profitability across all our segments.

In our Master Service Agreement, or MSA, businesses, these disruptions delayed revenue and billing milestone achievement, as assigned work was delayed. In our non-MSA, or project-based businesses, disruptions impacted our ability to be on-site at many jobs, our ability to start up new jobs, our productivity when on-site, and our change order processing and billing milestones.

First-quarter 2014 results were in line with our expectations, given the adverse weather conditions. We expect improved performance in second quarter, as we work to normalize Q1 weather impacts, as well as a strong second half of 2014. And today, we are reaffirming our full-year continuing operations adjusted EBITDA and net income guidance ranges.

Now let me cover some detail regarding first-quarter performance. First-quarter 2014 revenue was $964 million, up $45 million or 5% from last year, despite being negatively impacted by winter weather disruptions. Highlights include a 19% growth in our oil and gas segment and a 5% increase in our communication segment, driven by a 27% increase in wireless projects.

Also of note, we had a $35 million year-over-year revenue decline in our power generation segment, which was expected due to a tough quarterly comparison. As last year, we have several commercial and industrial projects in process, and in 2014, the majority of the work in this segment will be related to wind renewable energy projects. And these projects don't typically start up until summer.

As Jose already mentioned, despite this revenue decline, the power generation segment reported positive EBITDA in Q1 and we continue to forecast significant year-over-year 2014 EBITDA improvement in this segment.

First-quarter cost of revenue, excluding depreciation and amortization as a percentage of revenue, increased 100 basis points at 87.2% of revenue compared to 86.2% last year. And that is as a result of the previously mentioned winter weather disruption impacts on our project profitability.

Depreciation and amortization expense was flat compared to last year at 3.5% of revenue. First-quarter GAAP general and administrative expenses, including non-cash stock compensation as a percentage of revenue, increased by 20 basis points to 5.5% of revenue compared to 5.3% last year. Non-cash stock compensation caused a year-over-year 10 basis point increase in GAAP general and administrative expense.

First-quarter continuing operations adjusted EBITDA was $75 million compared to $81 million in 2013. On a rate basis, first-quarter continuing operations adjusted EBITDA margin of 7.8% compared to 8.9% last year and these results were obviously impacted by winter weather disruptions.

Highlights during the quarter include positive results in the power generation segment, which is the first time in the past five quarters. And as we previously indicated, we expect increasing levels of EBITDA for this segment during the balance of 2014 as wind project activity commences in the summer.

Interest expense during the quarter was $12 million compared to $10 million last year. And as a reminder, first-quarter 2014 results include a full quarter of interest expense related to the $400 million in senior notes issued late in Q1 of 2013, while Q1 2013 only had interest expense associated with these notes for approximately 2 weeks. Thus, interest comparisons are a bit of apples and oranges for this quarter.

First-quarter continuing operations adjusted diluted earnings per share were $0.21 compared to $0.29 a year ago, again including the impacts of the weather disruptions as well as interest expenses -- higher interest expense compared to prior year.

Now let me discuss a summary of our top 10 largest customers for the first quarter as a percentage of revenue. AT&T was 22%. Enbridge was 14%. DirecTV was 14%. Duke Energy was 5%. Energy Transfer Company was 5%. MidAmerican Energy was 4%. And ADCO Group, BHP Billiton, Starwood Energy, and Talisman Energy were each at 2% of total revenue.

As a reminder, our revenue is split between one-time individual construction projects and what we call Master Service Agreements and other similar contracts for generally recurring services and therefore recurring revenues. For Q1, 53% of our revenue came from Master Service Agreements or other similar contracts and 47% came from one-time individual construction projects.

Also it should be noted that with many of our customers we do significant number of repeat, follow-on, individual projects. I would like to highlight that as though -- even though our one-time individual project revenue is growing, we do enjoy very large and stable revenue base from Master Service Agreements.

At quarter end, our 18-month backlog from continuing operations was approximately $4.2 billion, up approximately $91 million on a sequential basis over Q4. The comparable number from Q1 last year was $3.5 billion, so year-over-year backlog growth approximated 22%.

As we stated a number of times, be careful not to overanalyze changes in quarter-end backlog numbers. Backlog numbers can be lumpy and bounce around some, and we do not believe that 90-day swings in backlog are necessarily indicative of longer-term trends in the overall business or in each of our segments.

Please keep in mind that the timing of backlog amounts can fluctuate just due to the timing of when contracts get signed. We do not count contracts signed after quarter end in our reported backlog, and, of course, we do not count verbal assurances.

Also, especially in oil and gas, we have significant amounts of book and burn work and therefore our backlog amounts in that segment are not really indicative of future revenue.

Lastly, please note that our backlog numbers are only for 18 months into the future and that means that some significant or longer duration projects may not fully be reflected in backlog as well as our Master Service Agreement work is only reflected on an 18-month period, even if the Master Service Agreement contract runs beyond that 18-month timeframe.

Now let me talk about our cash flow liquidity and capital structure. Liquidity at March 31, calculated as cash plus availability on our bank credit line, was $496 million compared to $585 million at year end. We have a $750 million credit facility, which, under certain circumstances, we can upsize to $1 billion. We believe that our capital structure is well positioned to support multiple future organic and other growth opportunities in 2014 and beyond.

Regarding our capital structure, at quarter end, we had $1.037 billion in total equity, $885 million in net debt, and all of our credit ratios are in great shape. In April, both Moody's and S&P reaffirmed our current debt ratings with stable outlooks.

Our Q1 accounts receivable days sales outstanding, or DSOs, were 101 days compared to 80 days for Q4, a 21 day increase. DSOs at the end of our first quarter were abnormally high, as winter weather disruptions delayed our ability to reach billing milestones on multiple jobs.

In addition, first-quarter DSOs were also impacted by a higher-than-normal level of change orders that were in process of resolution, which increased approximately $84 million over year-end levels. The majority of this increase was due to a large pipeline project, which amounts have been agreed to in principle subsequent to quarter end.

Resolution of this amount was delayed, as harsh weather and other factors delayed completion and testing of a pipeline segment and change orders could not be resolved until completion and testing was reached. Accordingly, we expect to see a reduced level of DSOs by the end of our second quarter and continue with the expectation that DSOs should normally range between the high 70s to mid-to-high 80s, which generally puts us lower than our peers.

That said, remember that as a single point calculation, DSOs can bounce around based on individual big project payment terms and the timing of job startups and job closeouts.

Regarding our spending on capital equipment, first-quarter cash CapEx net of disposals was $32 million and we added approximately $14 million in capital leases and other finance equipment purchases for a total CapEx spend net of disposals of $46 million. These levels are generally in line with our previously stated CapEx guidance of $190 million to $200 million, comprised of approximately 50% CapEx, cash CapEx, and 50% capital leases or equipment financing.

Moving on to our 2014 full-year guidance. We have slightly raised our current annual revenue estimate to $4.7 billion to $4.8 billion, while reaffirming continuing operations adjusted EBITDA of $520 million to $525 million and continuing operations adjusted diluted earnings per share of $2.27 to $2.30.

The 2014 revenue estimate represents an 8.7% to 11% increase over 2013, with a 16% to 17% increase in continuing operations adjusted EBITDA and a 20% to 21% increase in continuing operations adjusted earnings per share. Implicit in this guidance is a 50 to 70 basis point improvement in our 2014 continuing operations adjusted EBITDA margins to 10.9% of revenue -- 10.9% to 11.1% of revenue compared to 10.4% in 2013.

A significant driver of adjusted EBITDA margin rate expansion targeted in 2014 is the expectation of strong second-half results inclusive of a strong turnaround in the power generation segment as wind activity escalates.

Our 2014 full-year guidance assumes a tax rate of about 38%. We expect 2014 interest expense levels to approximate 2013 levels at about $46.5 million, reflecting a full year of interest carrying costs on the $400 million senior unsecured notes issued early in 2013, with interest expense decreasing in the back half of 2014 as the convertible notes mature and we take advantage of the interest rate arbitrage of refinancing these notes with cash flow and our revolver. We currently expect 2014 depreciation and amortization expense will approximate 2013 levels on a rate basis.

Our estimate for full-year share count for diluted EPS is about 87.3 million shares and 87.4 million for Q2. Remember that our share count for EPS purposes can fluctuate up and down with our stock price because of the accounting for our [$215] million in convertible notes. Approximately $115 million of the convertible notes mature in June, of which $105 million principal value of these notes will be settled in cash with the balance sold in shares.

We also have $100 million of convertible notes maturing in December, which can be sold at MasTec's option in either all cash, all stock, or a combination of cash and stock. We have accounted for all convertible notes based on the intent that we will retire the principal amount of these notes in cash and will issue shares for the premium value of the conversion feature of the notes.

Accordingly, we have included shares anticipated to be issued to retire the premium value of these notes in our weighted average share calculation as of Q1 and therefore the maturity of these notes are not expected to have any significant diluted effect to projected 2014 earnings per share.

We will, however, continue to evaluate our options for the settlement of the notes due in December based on our stock price and potential uses of cash for CapEx and in any M&A transactions. Given the expected strong cash flow in 2014, coupled with our ample liquidity position, we expect that we can easily repay the principal amounts on all convertible notes, utilizing 2014 expected cash flow and our existing revolver.

Which, assuming the continuation of current interest rates, would result in lower overall interest expense levels in the back half of 2014.

We currently estimate Q2 revenue in the range of $1.15 billion to $1.2 billion, an increase range in between 18% to 23% over last year. We estimate continuing operations adjusted EBITDA of $124 million compared to $110 million during the second quarter of last year. On a rate basis, this equates to a range of 10.3% to 10.8% compared to 11.2% last year. With this decrease primarily due to a tough rate comparison in our oil and gas segment from last year, we benefited from some project closeouts.

Lastly, we are expecting Q2 continuing operations adjusted earnings per share at $0.53. Our guidance reflects our normal seasonality as well as some anticipated revenue acceleration as we make up some of the first quarter delays.

Based on our first half-year guidance, if you do the math, that means that, broadly speaking, we expect strong EBITDA margin growth, approximating 170 basis points in the back half of 2014. And this is driven by expected margin rate improvements in our power generation segment as wind productivity hits its stride coupled with incremental margin rate improvement in all our other segments.

In summary, 2014 started out as expected. However, with the bad weather behind us now, we are well positioned in multiple growing markets and expect 2014 will be another record year.

That concludes my remarks and now I will turn the call over back to the operator for any questions and answers. Operator?

(Operator Instructions) Andrew Kaplowitz, Barclays.

Good morning, guys. Jose, you have been pretty careful to speak at least somewhat generically about the wireline fiber opportunity, but given the conversations you have had with your customers and the increased chatter, really just over the last couple of months, what is your confidence level that you could see a significant ramp-up in revenue in 2015, maybe even a couple hundred million dollars? I don't want to put words in your mouth, but I am going to try.

Well, if you take a step back, I think the most exciting part of the opportunity is the fact of its size and scope for everybody in the industry. I think everybody that is in this industry that participates on that side is going to benefit. It is such a large opportunity. So we are obviously really excited about it. There is a number of different carriers that are talking about their plans for the next couple of years.

So the answer, Andy, is yes, we do expect to participate. I think it is premature to put numbers to it, but it is obviously -- we are comfortable in saying that it is a big opportunity and it is of size and a scale and one that, at least for our segment of that business, which is pretty small, dramatically moves the needle for them.

Okay, so I have to ask you another big picture question, unfortunately, so also I know it is early, but in the news over the last couple of days has been talk of consolidation among some of your big customers. How do you look at that, Jose? What is the risk there that these guys would consolidate a little bit their CapEx plans over time?

And I know they do different things, so I'm confident that you still would have a lot of work, but maybe you could comment on potential consolidation amongst some of your big customers.

Well, obviously, AT&T is our biggest customer. DIRECTV bounces between being our second or third largest customer, and I think that is where you are going with the question. Look, they are both customers that we have what we think are excellent relationships with. We have demonstrated over the years our ability to grow with both customers. It is a very different skill set that they perform today.

So it's -- I think if you thought about what could potentially happen to DIRECTV over the last couple of years, there's been so many rumors, so many different articles and announcements over time, I really almost can't envision a better partner if there was ever a merger of companies than those two for us because of the relationships that we have with both companies.

Got it. Okay. Well, thank you, Jose.

Tahira Afzal.

Marc is certain to take me off of the Christmas card, so I will try to keep it to two questions. The first one is really in regards to your earnings trajectory. Jose, can you talk a bit about the visibility you have on that ramp on the wind side for the second half, which is important? Versus the last earnings call.

I think when it comes to power gen in our wind business, we feel really good. We have been feeling really good for a long time. Everything that we feel that we are working on and have isn't necessarily in backlog, which was part of the commentary that we made earlier. So we feel great in terms of what we know we have and what we need to hit to hit our numbers, so we really don't have a lot of concerns there.

It is a big swing from last year. Things have started off really well. I think we are pleased with the amount of activity and work that we are actually already starting to book for 2015. So we are starting to feel much better about that year as well. So I think we have got a great two-year outlook in that business and don't have a lot of concerns.

In summary, if we look at the year, we haven't really changed our views on Q3 and Q4 a lot. We think that revenues are going to kind of be where we expected them to be. Margins are going to kind of be where we expected them. First half is coming in a little bit softer than what we probably thought six months ago, partly due to the weather in Q1.

The wireless business is especially with, not so much with AT&T but with Sprint, is taking a little bit longer and I think it is going to push out, which is more into the second half of the year.

So we feel great about the second half. We feel good about what we have guided for the first half of the year. You blend it in, it slightly reduces our full-year EBITDA rate from where it was, but we are feeling great about the year.

All right. Then the second question is more just on industry dynamics. Over the past week or so, we have had some of your larger ENC peers talk about perhaps getting bigger on the wireless side of the business and the pipeline side of the business.

So, any comment over there with help. And then, yesterday, Berkshire announced that they will be acquiring a stake of Altalink, the big transmission entity in Canada. I know you have been looking to get bigger in Canada. Could your relationship with Berkshire potentially help you there?

So, on the first question, for a long time, we have been penetrating markets and really creating big market share in areas where others weren't looking. And I think we did a really good job with that for a long time. We are kind of flattered that people think that we are in good enough businesses that some of these big companies want to get into what we are doing.

With that said, we think our competitive position in those markets is at a point where we are happy to see them come because we think we are going to do very well in those markets regardless of -- we are not really worried about who might or might not be entering any particular market and our competitive advantage in those markets.

As it relates to your second question, we obviously have a very good relationship with now Berkshire Hathaway. They have done -- we have done a lot of work for them. It is obviously a big announcement. We've talked over the course of the last, I guess, number of quarters of our interest to continue to grow our presence in Canada.

It is an important market for us, both on the pipeline side and the transmission market. We have got plans in place on how we can get bigger and continue to expand in that marketplace, and, hopefully, as the next couple of quarters roll out, we will be able to demonstrate and talk about that.

Thank you very much.

Alex Rygiel, FBR Capital Markets.

Jose, congratulations to you and your team. Another great quarter.

Thank you, Alex.

Could you do me a favor and expand a little bit upon the activities with your second largest wireless customer, which I suspect is Sprint, and maybe quantify the contract or identify geographically what part of the country this is going to cover and maybe be a little bit more specific in when activities will ramp-up later this year?

What I can say is, obviously, something we have been working on for a long time. Something we probably expected to happen earlier in the year and for lots of reasons has been a little bit delayed. So we expect construction start to be a little bit delayed as well. We do expect that to ramp late in the second quarter, so we are seeing -- we will be mobilizing soon.

There is not a lot more that I can say right now and, unfortunately, this has all happened relatively quickly and in real-time, so hopefully on our next call, I can provide you with a lot more detail.

Okay. And then secondly, as it relates to pipeline opportunities, specifically in Mexico, obviously a very large ENC contractor recently announced the [Los Romanos] award. How do you view competition in Mexico on some of those bigger projects and how MasTec can fit or play in that market?

Look, what is interesting is their announcement was for a piece of Los Romanos, is for the southern piece. Los Romanos is obviously a very big and well-publicized project in Mexico. But what is interesting is there are a number of projects that are of similar size, scope, and scale that are going to be happening. A large number, actually, and one that the current infrastructure we think in-country can't support.

So it opens the door for all kinds of contractors to take advantage of that. We think it is a great opportunity for us. It is one that we are actively engaged in.

What I think is important about that, the announcement that was made, was the size and scale of what you're going to see in Mexico. I think you are going to see a lot of those. I think we are going to have the opportunity to compete on a number of those and we feel real good about the ability that we have to win some of those.

Thank you very much.

Noelle Dilts, Stifel.

Thanks, good morning. It was nice to see the strong $97 million contribution from acquired operations in oil and gas. Was that entirely Big Country? And then given that strong start, has that changed your full-year expectations at all for the division? And you reference that you are making some progress on maybe getting into the long haul work in Canada. Do you think you can do that organically or is that still a market where you feel you have to make an acquisition?

They obviously had a good quarter. They have been performing well. We have been saying all along that we are really excited about, not just Big Country, but the Canadian market, in general. They are a great Company with a great team and we are proud to have them. We expect them to have a very good year. It was the bulk of our growth in the oil and gas from the acquisitive perspective.

As it pertains to long haul, it is not what we are doing today; it is not the market we are generating revenues on, but, obviously, it is a piece that we have talked about in the past. Something that we do want to get into. It's -- we are trying as hard as we can to do that organically and I think we can achieve it organically. If the right opportunity came along, we would definitely consider it. But I think at this point, we are looking to expand in that area organically.

Okay. Then, second, just given your continued investment in training tower crews, can you talk a bit about the size of your tower-climbing workforce [stay], where you stand in terms of self-perform and your goal in terms of self-perform work?

Well, our big task today is we have to field the 212 crews that we have committed to our largest customer. We are well on our way of doing that. At some point in the second quarter, we will probably be almost halfway there. Obviously, it creates a strain where we are spending a lot of upfront money to train and get those crews ready and to outfit them and get them ready to start production.

So we really think we are going to see the benefit of that over time, towards the second half of 2014 and obviously into 2015.

It should be -- it should provide for very good returns. So we are excited about it, we are excited about what it means. Again, for us, this is more strategic than just one contract or one customer. We are extremely bullish about what tower climbing means to the industry and the importance of having strong tower-climbing capabilities.

Because the way the industry is moving with a lot of maintenance, it is going to end up at the tower tops and we just think long-term, the importance of tower crews is critical to the success of wireless construction companies and our goal is to be the biggest tower crew operator in the country. We think we are well on our way of being there and we think it is going to pay off for us really well long-term.

Great. Thank you.

Jason Wangler, Wunderlich Securities.

Good morning. Just curious on the pipeline business as you talk about 2015 and into 2018. Are you still seeing the expectations of us hearing more and more about those awards as we go throughout this year and into 2015, or what are you thinking as far as that?

The good thing is we have got good visibility. We know where the projects are. We know who the customers are. So whether the awards happen in late 2014 or early 2015 is consistent with what we have been saying for a long time and it is still our expectation.

Okay. And, George, if I could ask you just as far as the converts, obviously, we are coming up on the first tranche, but could you maybe talk about the idea of with where debt markets are at and, obviously, you have the revolver of potentially buying those in cash and adding debt, or is that on the table or where you are thinking as far as that going forward?

Well, the first tranche that's coming up, there is about -- there's $115 million of converts that come due in June. Those effectively will be at this point settled with the principal value in cash and the premium value in shares. And that at this point we are past the timing to make that decision -- that's effectively been made. So that is the way the first chunk will be had.

As far as the amounts that mature in December, that's the amounts we are evaluating. As I said in my remarks, depending on stock price, depending on our CapEx spend, and most importantly, depending on our M&A type activity, we have the option to treat -- to settle those shares either all cash, all stock, or some combination thereof. And that is what we will continue to evaluate as the time comes near.

I appreciate it. Thanks, guys.

Vishal Shah, Deutsche Bank.

Wanted to talk to you about the wind business. I know you said 2014, second half weighted, but how should we think about 2015 in light of some of the same issues that you may end up facing with the PTC exploration?

And you mentioned in your comments that you saw the visibility in 2015. Can you provide some more color on what kind of visibility you have, what the activity levels are right now, and whether you can get back to the profitability levels that you've seen in the past?

Well, we think 2015 is going to be a really good year in that business. The way that tax credits are working this time around, you actually have until the end of 2015 to construct. So there are a number of projects that are going to be built in 2014, but there's a number of projects that are also going to be built in 2015.

So we have actually been quite surprised at the backlog that we have been generating and creating for 2015 projects. So it gives us a lot of comfort and visibility into 2015. It is still obviously very early. So I don't know that we can give you a full-year outlook yet, but we are feeling really good.

What happens beyond 2015 -- we have said for a long time that one of the most important things for us in that business is to continue to diversify. We spent a lot of energy and a lot of the revenues that we generated last year were on really other types of projects outside of wind. We had mixed success with that. We learned a lot from it. We have been a lot more selective; we have picked up some recent projects that aren't just wind related as well.

So as we look beyond 2015, we need to have a lot more diversification in the business. We know that. We are working on it. But the good thing is we have got a lot of runway because the next two years, from a wind perspective, where we think we operate really well, look really promising.

That's helpful. And your competitor yesterday on the call said that they expect a lot of business in both the transmission and pipeline segment over the next couple of months. I'm just wondering what kind of activity you are seeing in those two areas and is it mostly Key West? Canada? Can you maybe talk about the level of activity you are seeing in transmission and oil and gas?

Look, I think we have been very consistent. We are going to see unprecedented levels of activity from 2015 to 2018. I think it is going to be as good as it has ever been. We think those awards start happening very late in 2014, early in 2015. There's a lot going on. They are both very healthy markets and markets that obviously we are very pleased to participate in.

That's helpful. Thank you.

Dan Mannes, Avondale.

Good morning, everyone. First, follow-up question. You have obviously laid out the case for a big ramp of T&D, power gen, and wireless for the back half of the year. Can you remind us your expectations on oil and gas in terms of your ability to grow year over year, particularly against tough comps? And secondly, do you still expect Enbridge to be your biggest customer in oil and gas through the balance of the year?

So, all along, we have said that 2014 is going to be a tough comp in oil and gas versus 2013. We were an early beneficiary of some of the long haul pipeline construction projects that happened. With that said, we still expect growth in our oil and gas business.

Not the growth levels that we have seen in the last couple of years, but we do expect some moderate growth over 2013. That view has not changed. It is exactly where we have been for a while.

In reference to Enbridge, we expect them to be a top three customer for the balance of the year. They have been from anywhere from first to third in the last few quarters and we kind of expect them to stay there. And we do expect them to be the biggest customer within the oil and gas segment.

Got it. And then one other question, really on the wireline side. If you can contrast this at all with, maybe the Verizon [fiber] build-out, which is I guess the closest thing I can remember. Can you contrast the scope of the opportunity and then how meaningful that was to you during that period and maybe give us a feeling for how that could play out?

Well, you have got to go back right to the late 1990s, early 2000s, which is when fiber to the home first started. And you have got a lot of different players out there today that are talking about 1-gigabit, some which have existing networks, some that don't, so they are very different build-outs depending on where you stand in the industry.

Because of that, because you have some new entrants that don't necessarily have an existing -- that really don't have any existing assets on ground, the work for them is much more considerable than you would for an existing carrier.

There is a lot of work for both, but obviously more when you have nothing. So I think the size and scope of the opportunities for the industry, relative to the early 2000s and what they are talking about going forward, I think it is much bigger going forward because of that fact.

Okay, thanks.

Will Gabrielski, Stephens Investments.

Good morning. Can you talk about Mexico a little bit more? Do you need a local partner in Mexico or do you think you can go it alone?

Well, I don't think you can go into a country and not have local participation. What local participation means is it in form of a partner, in form of subcontractors. I think it varies. So I think the opportunities there are competitive positioning and the way we think we've positioned ourselves we think is really strong, and we will make that determination probably on a project-by-project basis.

Is your conviction on those margins increasing and what the potential for backlog growth is in that business from where it is right now?

Well, we have been saying for quarters now that if you look at our last six or seven quarters, we have had quarters as high as 70 -- 17% margins in the oil and gas segment, which we achieved in the second quarter of last year. And actually in one quarter in 2012. Last year, we finished at about 13% for that segment. We expect the second half of the year to be at those levels. The first half is going to be a little bit lighter.

So we are probably on a full-year basis this year looking at somewhere between 12.5% and 13%. But we have also said as we look longer-term in that market, in that segment, there is no question that margins have a lot of room for improvement. Some of the reason that you get the higher margins in a particular quarter has all to do with utilization.

And as there is more work and competitors get full and there's more work available at better prices, we feel very confident that over time, margins will increase in that segment. I think -- and I don't think we are the only ones saying that. So I think the visibility in that is really good. So I do expect that.

Could you just touch -- I was actually asking specific to T&D, but that was very helpful -- to the electric transmission business?

All right. I thought you were talking about oil and gas.

But that was helpful, so I appreciate it.

Okay. I mean, in T&D, it is the same thing, right? As we grow our big project business and we continue to ramp in that business, margins -- we expect margins to improve. We have said last year we had a very strong second half of the year. We expect to have a very good year this year. We have been talking about getting back, approaching 2012 levels, and we have no change in view there.

Okay, thank you.

William Bremer, Maxim Group.

Good morning, gentlemen. All right, let's go -- let's stay with -- let's go back to pipeline a little bit, here. Can you give us a little more color on -- an update, what you are seeing on the shale side and then, of course, go into mainline there? The integrity work that you are currently doing, and then, finally, my final question is can you give us an update on how you are preparing for what we are seeing as a huge downstream market, primarily in the Gulf region, over the next couple years?

Sure. So, the shale business is very strong. Lot of activity. We think it is really ramping right now. The first quarter was tough relative to shale. A lot of the shale markets were probably more affected by weather. If you look at our year-over-year comp, it is probably the place where we had the biggest drop in revenues in the first quarter, was shale-related, you know, when you compare 2013 Q1 to 2014 Q1.

With that said, it is a great market, lot of good activity, and we expect it to be a really good year.

Our mainline business, as we have said, we were probably an early beneficiary of what was going on there. We have got a lot of work coming; we think we are going to do really well there. Our integrity business is doing well and growing.

And as it relates to the Gulf, we really, as you know, we don't have a big presence there. We are paying a lot of attention to the market. We think it is a very viable market and one that, over time, we need to participate in, but really don't have anything to publicly say yet.

Can you give us a sense on the contracts you are doing on the integrity side?

We are working for everything from the very large companies on large diameter pipeline in terms of integrity all the way down to municipal-type projects, where we are working with distribution companies on integrity work and everything in between. So it is not a big chunk of our revenues, but it is obviously one that gets all lot of publicity. It is a good long-term market.

I still think there needs to be some legislation our government mandates around that, in terms of pushing and taking that market to where it needs to go, but one that, obviously, over time will be a growing part of everyone's pipeline business.

Thank you.

Adam Thalhimer, BB&T Capital Markets.

Good morning. Jose, in terms of the wireline cycle, can you help us understand -- first of all, what are you seeing in terms of bidding now and how does this even play out? Will your customers be bidding out full states? Will they be bidding out entire cities' worth of work or will it be even smaller than that in terms of the project size?

So, Adam, I think you are going to see a combination of everything. We are not going to get into discussing what is actually happening from an RFP perspective at any given point. But it is a very active market and one that we think that's going to accelerate in terms of activity. So lots of opportunities, both short- and long-term and a very active marketplace.

With all of that said, there is a lot of -- everybody is going to do it a little bit differently. Everybody is going to have different rules around what you can and can't say. So we are going to probably be very limited on expanding much further than the things we have already said.

And how big is that end market for you today in terms of revenue? And what is the plan? Is it let's get some bids and then we will start adding capacity and we will -- similar to our history, we will be bigger in that segment then we have been for the last 10 years or so?

Well, today it is less than 10% of revenues. Historically, it was much greater. I think that we have got the capabilities in place to do it. I think we are really good at it. But, obviously, the opportunities for growth haven't been there.

The reality is that that business is one that was highly impacted by subdivision growth. As subdivisions were being built and plant was extended, there was a lot of work. And in the 2008 crisis, we saw that dry up and revenues were reduced in that market place at a very high clip.

This is the first time that you have a sizable opportunity that can really turn the tide for those types of businesses. So, what it means for each company and what it means -- obviously for the industry, it means there is going to be a lot more work and what it means for each company is going to be depending on their competitiveness and what they can provide. And that is what is going to play out over the next couple of years.

Okay. Thanks, Jose.

Liam Burke, Janney Capital Market.

Thank you. Good morning. Jose, on the -- with the ramp-up of permanent crews, and then you are looking at the next awards carrier [earning] again. What do the profit -- margin profiles look like compared to your traditional project work in wireless?

Well, a couple things, right. We said our margins in wireless over the course of the last few years have really improved. We were going through tremendous growth, which obviously impacted our productivity. As you add people and they are green, you don't get the amount of productivity you do -- that you get over time in any facet of the business. So we have seen that.

And that is part of the reason why we have been performing as well as we have and we have been increasing margins is because we have got more time under our belt. I think it is no different with these crews that we are putting on.

You know, at the end of the day, this is a subset of the entire wireless work that we do, so it is not like we are dramatically changing -- we're not going to be a total self-perform company and we are not going to be a total outsource company. We have never been. So it is somewhere in the middle. We are trying to manage that the best way that we can, but it is -- obviously, this is a sizable opportunity for us and over time, margins will improve.

So we have got good margins in that business, but we have been saying for quarters that it is one area, whereas we get a little more time under our belt as the business matures, margins will improve.

Okay. And then on the securities business, how do you see that ramping? Do you see anything meaningful this year or is that going to be a 2015 and beyond event?

Well, it has been ramping, right? We said today we think it will approach $100 million in 2015. It will probably be half of that in 2014. It was probably half of that in 2013. So it is on a nice ramp trajectory right now.

Great. Thanks, Jose.

John Rogers, Davidson.

I guess, Jose or George, in terms of the margins you are talking about on the industrial business, is that all wind at this point?

John, it is predominantly wind. It is not 100% wind, but it is -- a large majority of it is wind, where last year, a large majority was not wind. So there has been a big shift in the type of work we are doing in that business year over year.

And in the past, Jose, you have talked about some other opportunities with that segment, other end markets. Any updates there that you can talk about?

Well, sure, again, it is not 100% wind. The challenges that we had in 2013 as we were doing a lot of things that we hadn't done in the past and we didn't perform as well on those as we should have, which is why we really struggled throughout 2013 -- that, and utilization. So with the opportunities that we are seeing in 2014 and 2015, we only have so many resources, so we are really focus on the things that we do well.

But recognizing during that period of time that the future, right, when we think about 2016 and beyond, it is about being diversified. So I think we are taking a very -- in 2013, we were stuck, because there wasn't any wind. So we had no choice but to quickly try to diversify the business and get into a lot of things that we weren't doing before.

We made some mistakes there. We did some things that, in a normal environment, maybe we wouldn't have done. We learned our lessons. So we are going to take a different approach, which is we have what we think now is two years of runway to really diversify and build that.

So we are being very selective on what we go after. We are learning a lot from that and I think, over the course of the next two years, you are going to see us get into some things that aren't necessarily wind-related and build into what we think is going to be a very solid business for 2016 and beyond.

Just, pressing on that -- I mean, any specific end markets that you can talk about at this point?

Yes. The specific end market is anything related to power generation. So it's gas-fired plants. It's -- even oil and gas facilities work, although we do a lot of that within our oil and gas segment, there's some things that that group does well and some things they are currently doing. So I think it is a mix of power generation assets along with some facility type work on the oil and gas side.

Okay, thank you very much. Congratulations.

All right, thanks, John.

There are no further questions at this time. I would like to turn the call back over to Jose Mas for any closing remarks.

I would just like to thank everybody for their continued interest in MasTec and we look forward to updating you on our next quarterly call.

That concludes today's conference. We appreciate your participation.