MasTec Inc (MTZ) 2014 Q2 法說會逐字稿

Welcome to MasTec's second-quarter 2014 earnings conference call, initially broadcast on August 12, 2014. 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. Marc?

Thanks, Deanna, and good morning, everyone. Welcome to MasTec's second-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 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 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 continued ops financial measurements as discussed and reconciled in yesterday's press release and this morning's schedules. In addition, we may make 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 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 by Jose, followed by a financial review from George. These discussions will be followed by a Q&A period, and we expect the call to last about an hour.

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

Thank you, Marc. Good morning and welcome to MasTec's 2014 second-quarter call. Today I will be reviewing our second-quarter results as well as providing an outlook for the markets we serve.

Before getting started, I'd like to remind everyone that on June 1 we should updated guidance for the second quarter. At that time we identified two areas that were causing some short-term pressure. The first was wireless projects being deferred from 2014 to 2015, and the second was some softness in pricing in our oil and gas business.

Since that time we have worked hard to understand both the short and long-term impacts of those unexpected changes. While we are very disappointed with the short-term impact and the corresponding stock price movement, we strongly believe in these two markets and their ability to provide MasTec with strong growth opportunities for years to come.

We believe that over the course of the last few years, we have built a very solid brand in all of the markets we serve. I am encouraged by the number and the scale of our current opportunities, and I strongly believe that our best days are ahead of us.

Now some second-quarter highlights. Revenue for the quarter was $1.1 billion, a 13% increase over the prior-year second quarter. EBITDA was $106 million; earnings per share were $0.40; and cash flow from operations was $76 million. In summary, we had a quarter in line with our June guidance.

Today our organization is focused on getting through 2014 in the most efficient and profitable manner possible while at the same time preparing for 2015 and beyond. As many of you know, 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 markets. While we are experiencing some short-term challenges, we continue to believe that the outlook and demand for our services will accelerate over the course of the next few years.

While oil and gas, transmission, and wireless 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 growth in our security initiatives, and activity related to 1-gigabit high-speed connectivity for residential customers will be a significant opportunity for MasTec for a long time.

Now I would like to cover some industry specifics. Our communication revenue for the order was $528 million versus $497 million last year. While revenues grew 6% year over year, we were expecting significantly more growth in this segment prior to our updated guidance.

Our installable home revenue was up 7% year over year. The growth was driven by our continuing expansion in the security market. During the quarter we made a small acquisition 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 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.

Although wireline revenues for the quarter were down year over year, future prospects for that business are as good as we've seen in a long time. As reminder, the 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.

Subsequent to quarter end, we have been awarded approximately $0.25 billion worth of 1-gigabit fiber work. We expect revenue contribution from those awards to be minimal in 2014 but significant in 2015 and 2016. We also expect further awards before year end and continue to believe that the work associated with 1-gigabit rollouts across the country will be a significant opportunity for both MasTec and its peers.

Our wireless revenue was up 12% in the second quarter compared to last year's second quarter. This was considerably less growth than what we were expecting prior to our updated guidance. As we talked about on our June 2 call, a number of our wireless projects were deferred out of 2014. With our ramp in resources to meet the expected growth, these deferrals negatively impacted not only our growth, but also our margin profile, as utilization levels were below what we expected. While we have adjusted our workforce and continue to closely manage our workforce levels compared to our expected revenue levels, the reality is that these challenges will continue to negatively affect our financial performance through year end.

We are, however, very optimistic that the need for our service and the future workload levels that the industry requires are significant. We believe that carriers will continue to use our networks as a point of differentiation. Wireless networks continue to grow and evolve, and we expect to play an important part of that ongoing evolution.

As a result, we believe we have positioned ourselves very well in the market, and we are confident in our ability to considerably grow this business in years to come, as we have demonstrated in the past.

Revenue in our electrical transmission business was $115 million versus $119 million in last year's second quarter. While total transmission revenues were flattish year over year, our large project work is up considerably, thus the improvement in margins. While the mix of our work will shift from quarter to quarter, our long-term goal is to increase the amount of large project work that we perform. We expect strong year-over-year growth in the second half of the year, and the pipeline of opportunities is strong.

Moving to our power generation and industrial segment, revenue was $95 million for the second quarter versus $63 million in the prior year, and EBITDA margins for this segment improved by $12 million year over year. We are on track for a much improved 2014. 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. In addition, we have already been awarded over $200 million in projects for 2015 which are not included in our backlog.

Our oil and gas pipeline segment had revenues of $366 million for the second quarter compared to revenues of $297 million in last year's second quarter. EBITDA margin for this segment was 9.8%, up from 9.2% sequentially. As I commented earlier, we saw pressure in margins during the quarter, and we were hoping to be closer to 12% prior to our updated guidance. We expect margins to improve in the second half and approach last year's levels.

With that said, we are very excited and bullish about the long-term prospects in our oil and gas business. We expect a dramatic increase in activity levels. The market is extremely active in North America, and we are in dialogue on a number of opportunities and projects that will be built over the next three to five years.

Also, I'm very excited about our previously announced second-quarter acquisition of Pacer Construction. Pacer is a Canadian contractor in the heart of Alberta's oilsands, specializing in a wide array of key services, including mechanical, structural, fabrication, civil, and foundation work. Their foundation capabilities and their past performance on transmission jobs is an important addition to our capabilities in Canada.

To recap, despite the challenges we face in 2014, I feel strongly we have positioned this Company in the right markets at the right time. I am convinced that 2014 is not reflective of our earnings potential. I am looking forward to getting this year behind us and executing on the opportunities ahead of us.

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

Thank you, Jose, and good morning, everyone. Today I will cover second-quarter financial results; Q3 and full-year guidance; along with 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 adjusted EBITDA. Full reconciliations from GAAP results to adjusted results are included in our Form 10-Q and press release tables.

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

Before I get into detailed results, here are some highlights for the quarter. Second-quarter results were in line with our guidance issued in early June, despite pressure in our communications and oil and gas segments. We had strong cash flow from operations during the quarter and reduced our DSOs when compared to Q1 2014 by nine days.

We improved our capital structure during the quarter, increasing our financial flexibility and reducing our future financing cost on a rate basis. And we completed the strategic acquisition of Pacer in Canada.

Now let me cover some details regarding second-quarter performance. Second-quarter 2014 revenue was $1.1 billion, up $127 million or 13% from last year. Highlights include a 6% increase in communications, a 23% increase in our oil and gas segment, and a 49% increase in our power generation segment.

While the communications segment -- as Jose already noted -- grew, second-quarter wireless project revenue increased 12%. We initially anticipated that revenue growth levels in these projects would approximate our first-quarter growth levels of almost 30%. Thus, when wireless revenue growth unexpectedly slowed, coupled with the fixed-cost nature of our organizational infrastructure, it significantly impacted our initially anticipated second-quarter results.

While second-quarter 2014 communications segment EBITDA margin improved sequentially 130 basis points over first-quarter levels to 11%, it declined 180 basis points when compared to second-quarter 2013 levels. As we indicated in yesterday's press release, our guidance for the remainder of 2014 incorporates the expectation that second-half 2014 wireless revenues will decline when compared to last year, leading to an overall communications segment expected revenue percentage decline in the second half of 2014 in the low double-digit range when compared to the second half of last year.

We currently anticipate that revenue declines will be slightly greater in the fourth quarter as opposed to the third quarter due to the timing of project completions. We also anticipate that despite lower expected revenue levels, second-half 2014 EBITDA margin for the communications segment will improve 30 to 50 basis points over first-half 2014 levels.

Second-quarter 2014 oil and gas segment revenue grew 23% over last year, and our EBITDA margin in this segment grew sequentially 60 basis points over first-quarter 2014 levels to 9.8% of revenue. When compared to the second quarter of 2013, oil and gas segment EBITDA margin declined 740 basis points, as we are comparing against 17.2% EBITDA margin last year.

It is important to note that we have previously indicated that second-quarter 2013 oil and gas EBITDA margin was higher than normal. And we never anticipated that second-quarter 2014 EBITDA margin rates would approach last year's level. Thus, while we have indicated that we have experienced some margin pressure during the second quarter of 2014, the great majority of the decline in second-quarter oil and gas segment EBITDA margin versus second quarter of 2013 is due to the difficult comp versus last year.

Looking forward, we anticipate that second-half 2014 oil and gas revenues will approximate last year's levels, with a slower fourth quarter due to the expectation that significant long-haul project awards won't begin until 2015. We also anticipate that second-half 2014 oil and gas segment EBITDA margin will improve significantly over first-half 2014 levels, somewhere in the range of 200 to 240 basis points. This level includes the impact of our recent Canadian acquisition, Pacer, whose EBITDA margin is slightly lower than our historical segment average.

As a result of the previously mentioned impacts on our communication and oil and gas segments, second-quarter 2014 cost of revenue, excluding depreciation and amortization, increased 200 basis points to 86.1% of revenue compared with 84.1% last year. Second-quarter 2014 depreciation and amortization expense was slightly lower than second-quarter 2013 at 3.3% of revenue compared to 3.4% last year.

Second-quarter 2014 GAAP general and administrative expenses, including non-cash stock compensation, decreased 40 basis points at 4.9% of revenue compared to 5.3% of revenue in the second quarter of 2013. Second-quarter 2014 continuing operations adjusted EBITDA was $106 million compared with $110 million last year.

On a rate basis, second-quarter 2014 continuing operations adjusted EBITDA was 9.6% compared to 7.8% in the first quarter of 2014 and 11.2% last year. This represents a 180 basis point sequential improvement over first-quarter 2014's rate and a 160 basis point decrease compared to the second quarter of 2013, with this decrease due to the previously mentioned declines in communications and oil and gas segments.

It is noteworthy to mention that our power generation segment continued its improvement, reporting a positive $4 million EBITDA in the second quarter of 2014. And we expect continued improvement in EBITDA in this segment during the second half of 2014 as wind project activity accelerates.

We also had a very strong second-quarter 2014 EBITDA margin performance in our electrical transmission segment at 14.9% of revenue, due to recognition of a year-to-date project improvement. This rate is slightly higher than what we would expect to see in this segment during the second half of 2014.

Interest expense during the second quarter of 2014 was $12.9 million compared to $11.8 million last year, which is flat on a rate basis when compared to last year at 1.2% of revenue. During the quarter we retired our $115 million principal amount of senior convertible notes, financed the Pacer acquisition, and increased our revolver to $1 billion. I will cover these items in more detail when discussing our liquidity position.

Now I will discuss a summary of our 10 largest customers for second-quarter 2014 as a percentage of revenue. AT&T was 25%. DirecTV was 12%. Berkshire Hathaway Energy was 9%. Enbridge was 8%. Energy Transfer Company was 6%. Plains All American Pipeline was 3%. CenturyLink and Duke Energy were each 2% of revenues, and Arizona Public Service and Starwood Energy were each at 1% of total revenue.

Individual construction projects comprised 49% of our second-quarter revenue, with Master Service Agreements comprising 51%. And this mix is generally in line with recent trends.

At quarter-end, our 18-month backlog from continuing operations was approximately $3.9 billion compared to $4.1 billion last year and $4.2 billion as of Q1 2014. As indicated in our 10-Q, the decline in backlog compared to Q1 2014 was all comprised of reduced communications segment backlog. This was driven by reduced backlog level in wireless project MSA work.

Now let me talk about our cash flow, liquidity, and capital structure. We had strong cash flow from operations during second quarter of 2014, generating $76 million compared to a cash usage from operations during the second quarter of 2013 of $3 million. On a year-to-date basis we have generated $55 million in cash flow from operations compared to $23 million last year, a $32 million improvement.

Due to our seasonality we typically generate more cash flow from operations during the second half of the year. For full-year 2013 we generated $200 million in cash flow from operations, and we expect to slightly exceed this level in 2014.

Our second-quarter 2014 accounts receivable days outstanding or DSOs were 92 days compared to 101 days for the first quarter of 2014, a nine-day decrease. We indicated last quarter that DSO levels were higher than normal due to winter weather disruptions and increased levels of change orders and process of resolution, and those items have been collected in the second quarter. Looking forward, with the addition of Pacer, we expect that DSOs should normally range in the mid- to high 80s.

Regarding our spending on capital equipment, second-quarter 2014 cash CapEx, net of disposals, was $27 million. We added approximately $36 million in capital leases and other financed equipment purchases for a total CapEx spend, net of disposals, of $63 million.

Year to date we have incurred $59 million of cash CapEx, net of disposals, and added $50 million in capital leases and other financed equipment purchases for a total CapEx spend, net of disposals, of $109 million. We are moderating our planned CapEx spend in the second half of 2014 and now estimate that we will spend approximately $85 million to $95 million in cash CapEx in 2014 with an additional $80 million in financed CapEx, for a total CapEx of $165 million to $175 million, inclusive of Pacer.

Liquidity as of June 30, calculated as cash plus availability on our senior revolving credit facility, was $485 million compared to $496 million at the end of the first quarter. During the second quarter we increased the size of our revolving senior credit -- revolving credit facility from $750 million to $1 billion and added the capability to borrow funds in Mexican pesos.

We also retired $115 million principal amount of senior convertible notes that matured and converted in June, which lowers our financing cost rate going forward. Our overall net debt level as of June 30 was approximately $1.5 billion, reflecting the June acquisition of Pacer.

As previously indicated, we anticipate strong cash flow from operations in the second half of 2014, which, absent further M&A or other capital market activity, should reduce our debt levels to approximately $1 billion, with the majority of this decline expected during our fourth quarter. Our capital structure and liquidity are strong, allowing us the financial flexibility to pursue various strategic alternatives in North America.

Moving on to our 2014 full-year guidance, we are now projecting annual revenue of $4.4 billion to $4.5 billion, with continuing operations adjusted EBITDA of $420 million to $425 million and continuing operations adjusted diluted earnings per share of $1.55 to $1.58. Our full-year guidance assumes a tax rate of about 38%. Including the impact of the Pacer acquisition, we expect second-half 2014 interest expense levels to approximate $12.5 million per quarter and that second-half 2014 depreciation and amortization will approximate 3.5% of revenue.

Our estimate for the full-year share count for diluted EPS is about 86.4 million shares and 86 million for Q3. Remember that our share count for EPS purposes can fluctuate up and down with our stock price because of the accounting for our remaining $100 million in convertible notes, most of which can be settled at our option in either all cash, all stock, or a combination of cash and stock. We have accounted for all optional settlement convertible notes based on the intent that we will retire the principal amount of these notes in cash, and we will issue shares for the premium value of the conversion feature of these notes.

We currently estimate third-quarter 2014 revenue will range between $1.3 billion and $1.35 billion, with continuing operations adjusted EBITDA of $132 million and continuing operations adjusted diluted earnings per share of $0.56 per share. In summary, we had a rough start in 2014, but we believe that the 2015 outlook is strong. And we are well positioned to capitalize on various growth opportunities with an excellent workforce, an expanded presence in Canada, and a strong capital structure.

That concludes my remarks, and now I will turn the call back to the operator for Q&A. Operator?

(Operator Instructions) Noelle Dilts of Stifel.

So I understand that it's somewhat early, but I do want to dig into some of the drivers of improvement in 2015, given that I think that's what is most important to investors at this point. So in the press release you state that you anticipate wireless revenues returning to a normalized level in 2015.

But I'm curious as to how you are thinking about normalized, given the strong growth we've seen in that business over the past few years, ranging, by my estimate, from around $600 million to $866 million from 2010 to 2013. And I think you were looking for revenues of about $1 billion this year. So some thoughts on what you mean by normalized would be great.

And then, when do you anticipate seeing a rebound? Is it going to be early in 2015, more back-half loaded? Curious on your thoughts there. Thanks.

Sure. So if -- we are not in a position, obviously, to talk about 2015 guidance. We spent a lot of time over the course of the last month really trying to understand all of our wireless business, all of the customer opportunities that are out there. It's obviously a dynamic field, where there's a lot of changes happening -- the Sprint/T-Mobile acquisition falling apart. And what Sprint, I think, is ultimately going to do in the investment that they are going to make in their networks, I think, is a big positive for us and something that, hopefully, we can take advantage of.

If you go back to our original outlook for 2014 and where we were expecting our wireless business to be, we were actually probably expecting our wireless business to be closer to about $1.2 billion. We will probably end up somewhere in the $900s million, maybe the low $900s million.

And if I had to guess today, and if things go our way, and with the outlook and what we see today, and what we think 2015 is going to look like, we would hope to try to get it back to the levels that we expected to get to in 2014.

Okay, great. And then second question -- just looking at the Pacer acquisition, can you talk a little bit about how much accretion you are now including for Pacer in your 2014 guidance, and how we should think about accretion on an ongoing basis? And then could you comment on -- when you are looking at the soft oil and gas margins in the quarter, was that diluted by, maybe, breakeven or a loss at Pacer, given that you closed on the acquisition in the quarter?

No. Pacer didn't really generate a lot for the second quarter. When we look at the full year from Pacer, we have got a lot of amortization expense, especially, flowing through in 2014. So it's slightly accretive, but it's not massively accretive in 2014.

As we look beyond 2014, it's a solid company. We are excited about what they are doing. They are growing their business. They have made some investments in joint ventures, as well. So if you look at Pacer, and you look at the purchase price that we paid, I think there's two important things to note.

One, they had a lot of working capital relative to the size of their business; and part of it we think we are going to get back in terms of improving working capital. But there's also a portion of that which was investments in joint ventures of companies that they own minority positions in, or, let's say, 50% positions in, which we think our businesses are going to grow over time.

But they are performing very well. They have a very bright outlook. And obviously, if you look at our 2015 numbers, we are going to get a full year of Pacer. We will probably see from that about a $150 million pop in 2015 versus 2014 based on a full year. So we are excited about it.

Thanks.

Alex Rygiel of FBR.

Thank you, Jose, and thank you for a lot of the detail on the conference call. I do appreciate it.

A couple questions. First, for a number of years your full-year EBITDA target has been getting ratcheted up. And most recently, I think, your past target was 10%. You are going to fall a little bit below that this year.

But could you talk about your Companywide full EBITDA target? Can you get to 10% to 2015? Can you get a lot higher in 2015? If you could address that topic, please.

Sure. So if you go back to the beginning of this year, we were obviously hoping to be better than where we're going to end up. I think we had an internal target of -- in the low 11s.

So if you look at 2015 and where we are headed, we definitely think we can get to 10%. We think we have demonstrated that in the past. I think there's -- as the market improves, as we see growth in our pipeline business, as our wireless business comes back to normal, the opportunity for margin improvement is there. And we will take advantage of that.

Secondly, it sounds like you have got a lot of confidence about many of the opportunities ahead of you. You did mention Canada a number of times as it related to Pacer, and as it related to other opportunities. Can you address the Canadian opportunity over the next two to three years in a little bit more detail?

Well, I think in the last year, we've made a lot of investments there. We obviously bought Pacer. We bought Big Country last year. We are very bullish on the oil and gas sector in Canada and what's going to happen there, both in the short- and long-term.

There's been a lot of, obviously, press and dialogue on what's happening in the transmission market in Canada. It's a market that we haven't necessarily penetrated. We think Pacer helps us with our ability to do that.

So we are very encouraged in both of those markets, think they offer an enormous amount of potential for the industry. And we hope to take advantage of our share of that.

That's very helpful. Thank you.

Andrew Kaplowitz of Barclays.

Jose, so your oil and gas backlog rose. But if you exclude Pacer, it was probably down, which means it essentially has been flat or down in each quarter for a year now. And you have talked about that, so that's not unexpected.

But you have also talked about larger bookings starting to hit late this year and next year. And you also know about all the chatter that has been out there regarding MasTec's relationship with certain large pipeline customers. So maybe you could talk about your confidence level that backlog in the business is going to increase going forward, and maybe talk about timing?

Sure. The challenge for us in oil and gas has always been -- last year we were an early beneficiary of the long-haul construction starting. We obviously were awarded large contracts, which obviously moved the needle significantly on backlog.

I think that's how it's going to happen. I think we are going to get some very large award that's going to increase the backlog in a sizable way. You are going to work that off over time. And you get another sizable award, and it ratchets it up again.

So I don't think you are going to see consistent, predictable growth in backlog in that sector, because I don't think that's the way it's contracted, at least in our business. So we are going to have sizable awards. It's going to move the needle. We are going to work off some of that. Hopefully, we will be able to continue to replace that and grow that over time.

And that's how we expect it to happen. Our outlook on that has not changed. We expect the backlog to be down as we work through some of the larger jobs we were doing in 2014. We expect to replenish that in the short- to near-term. And really, our outlook on that hasn't changed one bit.

Okay, fine. And then, Jose, it looks like you have guided to about a 20% drop-off in revenue in 4Q versus 3Q versus the usual drop-off, around 10%. And you gave good color around those communications being a little lower in 4Q, and the same thing with oil and gas in terms of timing. Is that all this is?

I guess the issue that we have is that -- can communications -- can that business pick up pretty quickly as you go into the first half of next year, because maybe 1 gigabit really starts up pretty quickly next year? Because it looks like you have to pick up pretty quickly from, probably, some weather-induced 4Q issues, as well.

The short answer is yes. When you look at our wireless business, we were on pace to obviously have a very good year, and to have a year just like what we were expecting. With a lot of the deferrals that happened, it's obviously impacting the second half of the year much greater than it did the first half of the year. And it's impacting the fourth quarter probably more than any other particular quarter of the year.

And the reason is we are working as much of the work as we can now. As we finish that work, to the extent that that work doesn't get replenished in calendar year 2014, it creates an issue for us. And you are seeing that in the fourth quarter. So the biggest driver of our fourth-quarter drop is the fact that we've got a considerable reduction of wireless revenues, both of where we have been on a year-over-year basis and, more importantly, where it was versus original expectations.

So that's by far the biggest driver in Q4. We expected our oil and gas business to be down slightly in Q4 on a year-over-year basis from our first -- when we first put out guidance in the year. So that's not unexpected.

It's maybe slightly lower than what we were originally expecting. But the reality is that our biggest driver in the fourth quarter is what's happening in our wireless business. When we looked at 2015, we think two things are going to happen in wireless. We think it's going to be a much more consistent year, a lot more similar to 2013.

So if you look at our Q2, Q3, Q4 of last year in wireless, it was a very consistent trend from a revenue perspective. We think we will get back to that in the wireless business, and we think we will get into that in our bigger business.

We think it will be a bigger business that will be more consistent. It won't be front- or back-end loaded; it will just a more consistent year, which we think is really important for us, not only from a revenue perspective, but also with what we think we can do with that from a margin perspective.

Okay. Thanks, Jose.

Dan Mannes of Avondale Partners.

A quick follow-up on wireless, and maybe just a clarification for me: as you look to the guidance for the second half of the year and the way you are thinking about 2015, the margin contraction you are seeing -- can you maybe help us out with how much of that is your maintenance of overhead in anticipation of a recovery versus maybe the loss of some of the higher-margin work you have historically done? Can you maybe help us understand that a little bit more?

Yes. It has nothing to do with higher-margin work versus lower-margin work. That's not really what is driving the results. What is driving the results is our anticipation of 2014 being a significant growth year on the wireless side -- our reaction to that in terms of gearing up for that potential increase. So there's no question that when you look at 2014 versus 2013, we significantly added costs in the first half of the year to prepare ourselves for what we thought was going to be substantial growth. That growth isn't there.

We are trying to manage those costs as best as we can. So we have done a lot in terms of rightsizing the organization. Are we fully there? Probably not. But at same time, we are trying to manage that with what we think happens in 2015.

So we are not going to get to -- we're not going to rightsize the business to 2014 levels, because we are very confident that 2014 levels are not reflective of what our wireless business is going to look like long-term. So we are not going to make a short-term decision that affects our ability to execute in that business over the mid- to long-term. So we are going to take some pain in 2014 to be in a position to hopefully execute on the opportunities that are there and demonstrate that in 2015.

You know, the sad part about all this is we've done that consistently year over year over year. We've had phenomenal growth in that business, back all the way to 2008. We are having a very tough year, both from a comp perspective and from what we are doing on a growth perspective in terms of adding costs. But we are highly confident that come 2015, we are going to be able to demonstrate that we made the right decisions.

And just to follow up on that point, obviously you are showing a lot of commitment to this business in the expected growth, the recovery in spend by your primary customers. I know in the past you talked about, I guess, the TCAP program and things like that. Any commitment they are showing to you, or guarantees, or anything like that in terms of their plan for a spending recovery that enhances your confidence?

Obviously, our opinions and where we are at any given point in time is based on discussions that we are having with all of our customers. So again, we feel very strongly that 2015 is going to be a very good year for us in wireless, both from a revenue perspective and what we think we are going to be able to do from a margin perspective.

So we are not -- we are not saying this in a bubble. We are not -- this isn't just our opinion. We've got enough data that helps us get there. And we feel strongly about it.

Are we 100% certain? Can I guarantee it? Obviously, I can't. We are in the position that we are in in 2014. So we are taking everything with a grain of salt. We are managing it as close as we can. But we are highly confident in what's going to happen in 2015.

Makes sense. Thanks, Jose.

Jason Wangler of Wunderlich Securities.

I know it's stuff that's hard to talk about, but as far as that -- the 1-gigabit work, is that just one client? Or is there multiple clients involved in that? And maybe also just -- is that one contractor? Or is that a lot of different areas that you'd be working?

So a couple things -- when we talked about 1-gigabit, I think the most important part of the discussion is the size of the opportunity globally in the market. I think you are going to have a number of different carriers that are going to be very active, and in doing their 1-gigabit work, I think, is going to create enormous opportunities for the industry.

I think the opportunities are much greater than people quite understand. I think we are in for an incredible cycle in that business that's going to help the whole industry and, quite frankly, us and all of our peers.

Specifically about our awards, we are really not going to get into a lot of detail on that. The only thing I'll say is we do expect further awards as the year rolls on in 2014. So I think this is the start of something that will ultimately be a lot bigger, and we are really excited about that. It really moves the needle in that business for us.

Great. And then, maybe for George, obviously you got the first tranche of the converts done, looking into December, and you talked about all the cash that you guys would be generating. Is there still a thought process of looking at that from an aspect of taking those out? I know that you've talked in the past about share repurchases and things not necessarily being something to look at, but I guess it could almost be de facto in that nature. Is that still something that's on the table as we get to December?

We have all the flexibility. As we mentioned before, we can convert those, typically, either in all cash, all stock, or any combination thereof. And certainly we are evaluating all alternatives from -- for the second half of this year. So we do have that flexibility, and we will continue to evaluate it and proceed in what we think is the best manner for ourselves and our shareholders.

Great, I'll turn it back.

Tahira Afzal of KeyBanc.

Good morning, folks, and good quarter, given everything that's happening. So I guess the first question is on the pipeline side, Jose. Your folks have started some lending abilities or borrowing abilities or transactions on the Bessel side. And based on our channel check, seems like some of the large Mexican pipeline stuff is now headed into bidding. So as you look at your actual prospect list for the second half of the year, how would you split it up in terms of what you see in US, Canada, and perhaps Mexico in terms of awards?

What is exciting is that all three markets are really strong, and all three markets offer tremendous opportunity. I think you will see us take advantage of those opportunities in all three markets, especially when you look at the next couple of years. It's going to be very active. We are excited about it. We are really excited.

We think, obviously, that the US has been our bread and butter, and we think we are going to perform really well there. We've made a lot of investments in Canada that we think will really pay off. And we are very bullish on what's happening in Mexico. We think we're going to be a player, and we are very engaged in that process right now.

Got it, Jose. And second question is back on the gig of fiber side. Your comments that it is potentially bigger versus what is currently being perceived, to a great extent -- how do you get comfortable around that? Is that really based on the discussions you are having across the board, so not only with one or two first initial movers? Is that what it's based on?

Every time you pick up a publication in the telecommunications sectors, you've got a carrier talking about building out 1-gigabit capabilities. And what you are seeing is you are seeing multiple markets today where you have multiple carriers building in those same markets, which is really going to stress those individual markets in the workload and in the capacity of work -- capable of people performing in those markets.

I think that's a very, very positive trend in our industry. And I think it's going to continue. I think it's going to continue for a long time. And those that are engaged in that business are going to benefit from it.

Thanks a lot, Jose.

Adam Thalheimer of BB&T Capital Markets.

Jose, I wanted to dig in a little bit on the outlook for wireless next year. The outlook there -- is that -- some of the work that you came into 2014 thinking was going to happen with the cell site of the future and that type of program from AT&T -- is the growth in 2015 just if that specific work gets pushed into 2015? Or is it that there will be other work from AT&T, or maybe you picked up more territories from AT&T, or maybe it's the Sprint ramp?

Look, we have said a couple things over the course of the last year. One, we wanted to diversify our customer base. We think we made good inroads in that in 2013. Obviously, we think we are doing well in that in 2014. But there has been a lot of industry challenges relative to what's happening in the industry and the shakeup in the industry.

I think in 2015, you are going to see more of that from us. I think we're going to have the opportunity to work for multiple customers, because I think multiple customers are going to be extremely busy. I think that's going to be part of our driver.

Obviously, we think we have a great relationship with AT&T; it was our primary customer in that business. We are encouraged about their go-forward plans and the things that they need. We have been supporting them for a long time, and we're going to continue to do so.

So when you -- we have really never talked about one specific technology. I don't think the cell site of the future has ever even come out of our mouths. So I think that's something more about stuff that's just written out there.

We are excited about the opportunities with all of our customers in that business. We are excited about where we think spend levels go. Again, all of these carriers -- the differentiation of their products have a lot to do with their networks, which I think is going to drive a lot of investments in those networks over time.

It's what we do. We will play a role in that, an important role in that, for multiple carriers. And that's what's going to drive our business.

Okay. And then on the $250 million award -- is that from an existing customer or a new customer? And what are your thoughts about margins on 1-gigabit work versus wireless work?

Well, I'll answer the second part of it first. Wireline margins for us have dragged our communication margins for a long time. And if you go back into the mid-2000s, our wireline margins were probably as good as any business that we had. And then you had the downturn of the real estate market, which really negatively impacted wireline work in general from a volume perspective, which ultimately drove it from a margin perspective.

So we feel real good about that business coming back. We think that as utilization levels improve and you get a lot of work in certain markets, it's going to give you the ability to really generate nice margins.

We've performed well on our communications margin. We would probably go into it thinking that they are going to be slightly less than our full-segment margins, although we obviously would hope to get there over time. So we are encouraged by it.

There's going to be a lot of work. Pricing will change over the long-term as more capacity gets eaten up in that business. We are excited about it. We are going to be working 1-gigabit work for multiple customers over the next couple years. And at this point, we're really not going to get into customer breakdown on that.

William Bremer of Maxim Group. (Operator Instructions) Vishal Shah of Deutsche Bank.

Jose, you talked about pricing challenges in the oil and gas segment. Are you still seeing that? Has that made an improvement in that segment?

And the second-half transmission segment growth -- is it going to come from large transmission? Are you also seeing growth in some of the other areas? And how should we think about the margins in that business in the second half?

Sure. So when we look at oil and gas, our margins in the second half are getting better than they were in the first half. Part of that is driven by a slight improvement from what we saw earlier in the year from a pricing environment. So we have seen improvements; the answer is yes.

With that said, it's still a competitive market out there. There's a lot of capacity. Again, there's a lot of work coming, and I think that capacity is going to get sucked up in rather short order. But until it does, I think it does impact some of the shorter-term work in the meantime, which I think we have seen and will continue to see through year-end.

On transmission, we would expect continued improvement in the second half over the first-half level. I mentioned in my comments we expect it not to be quite as high as Q2, but we would expect improvement from the first-half levels in the transmission EBITDA margins.

And yes, we are seeing an increase in some of the larger work. It's becoming a larger percentage of what we do.

It will change quarter to quarter. We are still active on some of the smaller projects. Quite frankly, it's where we have struggled more from a margin perspective over the last couple years. So we are definitely emphasizing the larger-project work, where we have done better from an economic standpoint. But we will continue to play in both markets.

That's helpful. And then you mentioned you could get back to the $1.2 billion run rate in communications next year. Given the mix impact, what do you think the margins could look like, given the 1-gigabit opportunity is going to be lower-margin business than some of the wireless?

Look, when you look at last year, we ran just over 12.5 points in EBITDA margin. We are obviously talking about being a couple hundred basis points below that on a full-year basis in 2014. So I think the opportunity will be there to definitely get back to those levels. And over time, especially as the 1-gigabit opportunity increases, I think we could potentially see margins improving.

Thank you.

Veny Aleksandrov of FIG Partners.

My first question is on the wind. You said that the pipeline is building. Can you give us a little bit of details how these projects are shaping? Is it going to be starting late 2014, but really impacting 2015-2016? What is the regulatory framework right now?

I missed the first part of it. Which business are you talking about?

Wind, wind.

Wind. So, no -- we are obviously having a very good year this year. We have talked about doing $400 million of revenue in 2014, which is consistent with what we have been saying probably for the last year. So we are up nicely in that business in 2014 versus 2013.

We are very encouraged about 2015. In our commentary we talked about already having just over $200 million of backlog for 2015, and the activity for projects both for the end of 2014 and 2015 is extremely active right now. So we are in a much better spot at this point in time relative to 2015 than we were at this point in time relative to 2014 last year.

But I think it's still too early to tell. So we are not really ready to talk about 2015 in a big way, other than to say we expect 2015 to be just as strong as 2014, if not better.

Thank you. And then installable home -- you haven't talked about this business for a while. With everything happening in the industry, what is happening? Was this business stable? Has it been growing so far in 2014? The new areas that you were going? Kind of a little bit more details there, if you could.

Yes. So we said it's up 7% year over year. A lot of that growth is driven by our security initiatives, which is really where our growth is coming from. So we feel good about that. We think that's going to continue to grow.

Obviously, AT&T has announced the acquisition of DirecTV. We expect that to close sometime in the middle of 2015. And we are working with both customers to -- and I think that will accelerate our involvement in that over the course of the next 6, 7 months. But we feel good about it.

The business for us is always -- it's a stable business. I think that growth is going to be driven by how aggressively they go after customers. I think we are somewhat hopeful that AT&T will take a little bit more of aggressive position than DirecTV has over the last couple years in terms of customer additions. And if they do that, that should bode very well for that business.

Thank you, appreciate it.

Will Gabrielski of Stephens.

The CapEx cuts are pretty material, half on half. I'm just wondering which business you are pulling back in most around CapEx; or have you just achieved the plan you thought you would get to more quickly?

Well, we've talked a lot about, in the last year, the investments we've made in equipment. We've also talked about our ability to manage the business at a much lower CapEx rate than we've been generating. Obviously, we've been trying to get ready for growth. Nothing has changed.

The oil and gas business -- as it comes back, we are in a very good position to man that with both resources and equipment. And depending on the growth profile of the business, and how much we win, and how fast it grows, then we will temper that CapEx based on what we need.

But we feel good about what we are spending. We think it meets all of our needs. We are in a good position relative to the growth opportunities ahead of us. And to the extent that we can manage that, we are going to manage that.

Okay. When you think about the growth you are talking about potentially in wireless next year, the comps are still pretty tough first half of 2015 versus first half of 2014. So is that growth going to be second-half weighted, or is it too early to say?

Well, obviously our second-half comps next year are going to be a lot better than our first-half comps. So you are going to see more growth in the second half than you will in the first. But we would expect, with what we know today, the first half to be not dramatically different than what the first half of 2014 was.

Okay. And then just lastly, in terms of pricing on the oil and gas side, during your update mid-quarter you talked about it basin-specific, maybe some more pricing weakness in some specific basins. Has it spread outside of where you were seeing it?

Well, we've seen competition everywhere. So the different basins, which is where a lot of the shale work is today, which is where a lot of people are trying to work -- as some of the long-haul work comes to fruition, I think it's broad-based. I think, obviously, some shales are more affected than others.

But we think across the board, competition has been high across the shales, and more so than it had been in previous years. So, really, no change in what we were seeing earlier this year, with the exception that we have probably seen a little bit of uptick in pricing.

But is it new entrants? Or is it lack of demand?

It's a combination of everybody.

Great, appreciate it.

John Rogers of D.A. Davidson.

Jose, I just wanted to follow up on the oil and gas side. Your optimism relative to the project opportunities coming for you in 2015 -- first of all, when do you have to start to book that work to fill up your schedule for 2015? Is that something we will see this year?

Look, we've said all along, probably since last year, that we expected awards for 2015 to start in late 2014. I don't know that our views have dramatically changed on that.

Could it slip into the beginning of 2015? It could, but our view hasn't really changed in the last 12 months. There's a lot of dialogue going on. There's a lot of projects that are on the board that are being discussed, and we think there's going to be a lot of activity. So really, in -- our view hasn't really changed on that.

Okay. And is it your hope/expectation that this is the long-haul pipe that we will see, that presumably is a little less competitive or fewer qualified contractors?

Again, we are going to see a massive increase in that portion of the business. I do think there's less players there, obviously, which -- and I think as they fill up -- you know, it affects everything. Because as the bigger contractors get fuller, then their participation in the shale and their interest in the shale somewhat weans, which improves all the shale business, too.

So it really affects the whole business, the whole market. And we have talked about that for a long time. We've talked about what we think the pricing pressure is across the entire industry. It starts with long-haul being active. And as long-haul gets active, I think it's good for the whole industry. And I think we are on the cusp of that happening.

Thanks and appreciate the detail.

At this point we are over time. And our final question comes from William Bremer of Maxim Group.

Could we just go into a little more granularity on the backlog per segment? Maybe give us a little insight of the makeup a little bit there, if you don't mind, in some of the pricing components. Your backlog in some of the segments have grown very, very nicely, and just want to get a little color in terms of the overall pricing and the makeup there.

The biggest change in backlog was in our communications sector -- the anticipated reduction in wireless revenues for the balance of 2014. That's really what drove our reduction in communications backlog.

The way we calculate backlog in MSAs is we take the current run rate and annualize it for 18 months, which is what we've done. We don't think it's a true reflection on what the backlog of that business is, but that's how we calculate it. So that's how we calculated it for this quarter, which led to the decline.

In oil and gas, as previously mentioned, we obviously had the addition of Pacer's backlog in that business. Outside of Pacer it was down slightly, as expected, because as we work off big projects, until we win the next big project, we won't see a sizable increase there. We think that's coming.

Outside of that, I think backlog was pretty much in line with where it has historically been. And we wouldn't expect many changes to that as we go forward.

And then just a quick follow-up on long-haul: can you give us a sense of what you are seeing in terms of the bidding opportunities, not just domestically, but Mexico as well as Canada? And would you need to perform some type of acquisition to execute in the Mexican region?

We don't think so. So we talked a little bit about Canada, the investments that we have made. We are, again, very bullish on that market.

We think the US market is going to be very active for a long time. And we are very encouraged about what's happening in Mexico. There's a number of big projects that are in play currently, and we think we've got a real good opportunity to win some and be active down there.

We think we can do that. We've worked real hard down there. We have had a presence down there now for a good period of time, and we think we are in a really good position to execute.

So we expect all three markets to be very good for us. Obviously, the bread-and-butter markets for us are the US and Canada, because we've got so much investment there. But we are incredibly encouraged about what's happening in Mexico and our ability to perform there.

Great, gentlemen. Thank you.

With no further questions, I'd like to turn the conference back over to Mr. Jose Mas for any additional or closing remarks.

So again, I just want to thank everybody's participation. I know we did this call a little bit later than usual. We look forward to getting back onto our normal schedule starting next quarter. And look forward to updating everybody. So thank you.

That does conclude today's conference. Thank you for your participation.