MasTec Inc (MTZ) 2014 Q3 法說會逐字稿

Welcome to MasTec's third-quarter 2014 earnings conference call initially broadcast on October 31, 2014. Let me remind participants that today's call is being recorded. At this time I'd like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Marc?

Thank you, Christy. Good morning, everyone. Welcome to MasTec's third 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 a 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 efforts to update these expectations based on a subsequent events or knowledge. Various risks, uncertainties and assumptions are detailed in our press releases and filings with the SEC. Should one or more 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 conference call. A reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings press release, our 10Q, our10K or in the investors and news sections of our website located at www.MasTec.com. With us today we have Jose Mas, our CEO, and George Pita, our Executive Vice President and CFO.

The form 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 short Q&A period, and we expect the call to last for about 60 minutes. We have a lot of important things to talk about today, so I'll go ahead and turn the call over to Jose. Jose?

Thank you, Mark.

Good morning and welcome to MasTec's 2014 third quarter call. Today I will be reviewing our third quarter results as well as providing my outlook for the markets we serve.

First, some third quarter highlights. Revenue for the quarter was $1.31 billion, a 3% increase over the prior year's third quarter.

EBITDA was $132 million, and earnings per share were $0.56. While we had a good quarter in line with our previous guidance, our current focus is on getting through 2014 in the most efficient and profitable manner possible while preparing for 2015 and beyond where we expect significant increases in the number and size of opportunities.

As many of you know, 2014 has been a challenging year for MasTec, primarily in two areas. First, our wireless business experienced a number of deferrals and delayed expenditures which are negatively impacting our growth in the second half of the year. And in our oil and gas business we saw both pricing pressure early in the year and delays in the start up anticipated long haul projects in late 2014.

Despite these issues, we have been able to continue to grow the business and prepare for what we believe will be a significant ramp in the years to come. Before covering our industry specifics, I'd like to highlight some near term opportunities. With our recent acquisition of WesTower, we are incredible well positioned to continue to benefit from the investment in our nation's wireless networks.

With increased geographic scope and services, we are uniquely positioned in this market. As it relates to 1GB projects we are now more confident that this opportunity will translate into significant growth opportunities for MasTec. We expect our wireline business to experience strong growth in 2015 related to 1GB. But the reality is the opportunities beyond 2015 are far greater. As it relates to oil and gas, the amount of work that is being discussed, bid or negotiating is at staggering levels.

While projects are being slightly delayed for environmental and permitting issues, we expect there will be a multi-year cycle that will challenge the construction industry's ability to meet this demand. I mention these opportunities to provide insight on how we see the business. Quite frankly, we're disappointed with our results thus far this year. We expected higher levels of growth.

However, if we execute, the opportunities in front of us are at unprecedented levels. For this reason and the fact that we recently closed on the WesTower acquisition, we decided to give a very early estimate of 2015 guidance. George will cover the numbers later. But this initial estimate assumes oil and gas long haul project activity, doesn't materially improve until late in 2015, and it assumes only the start up of 1GB activity.

Yet even at these ranges we believe that based on historical multiples our current stock price provides investors a significant opportunity for appreciation. Now I would like to cover some industry specifics. Our communications revenue was $505 million versus $543 million last your. The drop was primarily driven by a reduction in wireless revenues.

Our install home revenue was up about 3% year-over-year. This growth was driven by security-related revenues, and we expect continued growth in 2015. Wireline revenues for the quarter were down year-over-year, however, future prospects for that business are as good as we have seen in a long time. Included in our backlog at quarter end is approximately $250 million related to 1GB work.

Revenue for this work will be minimal in 2014 but will grow nicely in 2015 and 2016. We expect further rewards and believe this to be one of MasTec's largest opportunities over the next couple of years. As expected, our wireless revenue was down year-over-year. For the second half of 2014, a number of our wireless projects were deferred.

With our ramp in resources to meet the expected growth earlier this year, these deferrals negatively impacted not only our growth but also our margin profile as utilizations 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 changes will continue to negatively affect our financial performance through year end.

We are however, very optimistic that the need for our services and the future workload levels that the industry requires are significant. Subsequent to quarter end we announced the acquisition of WesTower. Integration of WesTower has begun, and we believe the combined entity will offer us strong opportunities for growth. Revenue in our electrical transmission business was $133 million versus $119 million in last year's third quarter, a 12% year-over-year increase.

This was our highest level of quarterly revenues since we started the transmission business. We continue to see a very strong bidding environment, and we are confident in our ability to continue to deliver strong results in this segment. Moving to our power generation and industrial segment, revenue was $114 million for the third quarter versus $85 million in the prior year, and EBITDA for the segment improved by over $11 million year-over-year.

We are on track for a much improved 2014. In addition we expect 2015 to be a very good year. For 2015 we currently have $290 million worth of projects that are either in our backlog or have been verbally awarded. Bidding activity remains very active, and we are encouraged about our visibility this far in advance. Our oil and gas pipeline segment had revenues of $557 million for the third quarter compared to revenues of $519 million in last year's third quarter.

EBITDA margin for the segment was 13.1%, flat with last year but up from 9.8% sequentially. As I commented earlier, we saw pressure in margins during the first half of the year. We are now seeing an improved pricing environment. We expect fourth-quarter EBITDA margins to be similar to last year's levels. 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.

While there is some uncertainty as to the actual start dates due to delays in environmental and permitting activities, 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, subsequent to quarter end and not included in our backlog was about $300 million of pipeline awards at our Precision Pipeline subsidiary that will be mostly completed in the first half of 2015. To recap, despite the challenges we face in 2014, I feel strongly that we have positioned the Company in the right markets at the right time.

I am convinced that 2014 is not reflective of our earnings potential. I'm looking forward to getting this year behind us and executing on the opportunities ahead of us. I would now 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 third quarter financial results, fourth quarter and full year 2014 guidance, along with our cash flow, liquidity and capital structure. Due to the impact of the recent WesTower acquisition, I will also cover a preliminary look at our 2015 financial performance expectations.

As in our previous calls when we discuss our financial results and guidance, we are discussing non-GAAP continuing operations adjusted earnings and adjusted EBITDA. Full reconciliations from GAAP results to adjusted results are included in our form 10Q and press release tables. As indicated in our release, continuing operations adjusted results for fourth quarter 2014 and FY15 will now also exclude the impact of acquisition integration expense come anticipated to be incurred in connection with the WesTower acquisition.

We estimate that these costs will approximate $20 million and be primarily composed of lease and equipment exit costs, employee separation and one time training efforts to implement our systems and processes. We are currently estimating that we will incur approximately $10 million of these cost in the fourth quarter of 2014 with the balance to be incurred during 2015. Obviously, given the recent timing of the acquisition, estimates of total cost and timing are preliminary as we are still finalizing our integration plan.

Before I get into detailed remarks, here are some highlights for the quarter. Third quarter results were in line with our guidance, and our EBITDA margin increased sequentially by 50 basis points to a 2014 high of 10.1% despite the profit pressure created by decreased levels of wireless revenue as well as costs incurred during the quarter in right sizing our wireless operations. Oil and gas segment EBITDA margins during the quarter improved sequentially by 330 basis points to a 2014 high of 13.1%, and we successfully completed construction of a major long haul project during the quarter.

Our power generation segment continued a strong turnaround in 2014 versus last year as EBITDA margin in this segment increased dramatically from a negative a 7.5% to a positive 4.3% representing an $11.3 million positive swing. While our cash flow from operations during the quarter was lower than last year, this was primarily due to the timing of project completions including final closeout and retainage billings. We reduced our DSOs when compared to the second quarter level by four days.

We continue to expect strong cash flow from operations during our fourth quarter and expect that cash flow from operations for the full year 2014 will exceed 2013 levels. Now let me cover some details regarding third quarter revenue performance. Third quarter 2014 revenue was $1.3 billion up 3.2% from last year. Highlights include a $38 million increase over last year in our oil and gas segment, a $29 million increase in our power generation segment and a $14 million increase in our electrical transmission segment.

These revenue increases were partially offset by a $38 million decrease in our communications segment which was primarily due to previously announced expected lower levels of wireless project activity. Now I will discuss a summary of our top 10 largest customers for the third quarter 2014 as a percentage of revenue. AT&T was 16%. DirecTV was 12%. Enbridge was 10%. Brookshire Hathaway Energy was 8%. Canadian Natural Resources was 4%, and we had for customers at 2%, CenturyLink, Plains All American Pipeline, Chesapeake Midstream Partners and Duke energy.

Individual construction projects comprised 57% of our third quarter revenue with master service agreements comprising 43%, and this mix is generally in line with recent trends. As far as major customer trends are concerned, while AT&T total customer revenue was essentially flat during the third quarter when compared to last year, it is important to note that AT&T total customer revenue is comprised of three separate service contracts with three different operational groups: wireless, wireline and home security installation services.

During the third quarter we had strong growth in wireline and home security installation services, which were mostly offset by expected decreases in wireless construction services. As we have previously indicated, we expect wireless project activity will slow further in our fourth quarter before normalizing, and we expect growth in 2015 from a combination of industry growth, market share gains and contribution from the recent WesTower acquisition.

At quarter end our 18 month backlog from continuing operations was approximately $4.1 billion compared to approximately $3.9 billion as of both the second quarter of 2014 and the third quarter of last year. This represents a 5% increase in sequential backlog. Backlog of growth was led by the communications segment, which grew by $230 million primarily due to the addition of a large 1GB fiber deployment contract.

As Jose mentioned, we have had some good increases in oil and gas backlog subsequent to quarter end, and this will be reflected next quarter. Also, for the sake of clarity, given the recent timing of the acquisition, our third quarter reported backlog levels do not include any amounts for WesTower, which will be reflected next quarter.

Regarding third quarter 2014 EBITDA performance, continuing operations adjusted EBITDA was $132 million compared with $135 million last year. On a rate basis third quarter 2014 continuing operations adjusted EBITDA margin was 10.1%, compared to 9.6% in the second quarter of 2014, and 10.6% last year. As I mentioned earlier, our consolidated EBITDA margin improved 50 basis point sequentially over second quarter levels despite the impact of decreased wireless project activity to a 2014 high of 10.1%.

Looking at our performance at a segment level, as indicated in my summary comments, we reported strong oil and gas EBITDA margins of 13.1%, a 330 basis point sequential improvement, and also a 2014 high mark, and power generation continued its strong year-over-year turnaround. Communication segment EBITDA margin for the third quarter was 10.4% which was in line with our expectations and reflects expected reduced levels of wireless project activity. Third quarter 2014 communications segment EBITDA also includes approximately $3 million in costs incurred during the quarter as we rationalized our wireless operation cost structure.

As we have previously indicated, during the first half of 2014, we had been significantly investing in expanding our wireless organizational structure in order to keep up with wireless project growth and new programs. Given the lower level of wireless project services to be rendered during the second half of 2014 we have taken actions to normalize our cost structure while still planning for growth in 2015.

In our electrical transmission segment we reported a 9.6% EBITDA margin during the third quarter of 2014, a slight decline when compared to last year's 10.2%. The majority of this margin rate decline was caused by costs incurred during the quarter to start up Canadian operations as we established a business office in Calgary with the expectation of generating return on this investment in 2015. Regarding other areas of the income statement below the EBITDA line, third quarter 2014 depreciation and amortization expense was in line with our expectation at 3.2% of revenue compared to 3.0% last year, and this level includes increased expense levels from Pacer acquisition in the second quarter.

Third quarter 2014 GAAP general and administrative expenses including non-cash stock compensation were flat on a rate basis when compared to last year at 4.6% of revenue. Interest expense during the third quarter of 2014 was $12.6 million compared to $12.7 million last year. Even though we have higher borrowings compared to a year ago due to the Pacer acquisition, interest expense levels were flat as we have reduced our effective borrowing cost with the second quarter retirement of $115 million convertible notes.

Now let me talk about cash flow, liquidity and capital structure. We generated $81 million in cash flow from operations for the nine-month period ended September 2014 compared to $129 million for the same period last year. Due to the seasonality of our business and timing of project close outs in 2014, we expect to generate significant cash flow from operations during the fourth quarter and expect that full year 2014 results should exceed 2013 full year cash flow from operations levels of approximately $200 million.

Our third quarter 2014 accounts receivable days sales outstanding, or DSOs, were 88 days compared to 92 days for the second quarter 2014, a four-day decrease. As we indicated during the WesTower acquisition conference call, acquired WesTower operations have DSO levels that are approximately 40% higher than MasTec levels. Thus, we expect that if these amounts are consolidated into MasTec results our year end DSO levels will increase from current levels. We have initiated actions during the fourth quarter designed to improve acquired WesTower working capital levels, but it will clearly take some time to get acquired DSOs in line with MasTec levels.

Regarding our spending on capital equipment, third-quarter 2014 cash CapEx net of disposals was approximately $20 million. We added approximately $12 million in capital leases and other financed equipment purchases for a total CapEx spend net of disposals of $32 million.

Year-to-date we have incurred $79 million of cash CapEx net of disposals and added $62 million in capital leases and other financed equipment purchases for a total CapEx spend net of disposals of $141 million. We currently estimate a moderated capital spend in the fourth quarter and now estimate that we will spend approximately $80 million to $85 million in cash CapEx in 2014 net of disposals with an additional $80 million to $85 million in finance CapEx for a total CapEx spend net of disposals of $160 million to $170 million.

Liquidity at September 30 calculated as cash plus availability on our senior revolving credit facility was $270 million. Liquidity as of September 30 includes a temporary reduction of approximately $150 million as our revolving credit facility requires that we reserve liquidity as we approach the December settlement of our $100 million convertible notes. Our overall net debt level as of September 30 was approximately $1.2 billion reflecting the June acquisition of Pacer.

As we indicated in yesterday's 10Q we exercised a portion of our $250 million accordion feature with our bank group and added a $75 million term loan in October as part of the WesTower acquisition. We are continuing to evaluate our debt structure to ensure we have ample liquidity to allow us the financial flexibility to pursue attractive growth opportunities. As we look forward into 2015 we expect our leverage ratios to significantly decline compared to 2014 year end levels, and expected increased levels of operating profit should generate strong cash flow from operations.

Moving on to our 2014 full-year guidance which now includes WesTower operations, we are projecting annual revenue of approximately $4.6 billion with continuing operations adjusted EBITDA of approximately $425 million and continuing operations adjusted diluted earnings per share of $1.55. This guidance reflects the assumption that WesTower fourth quarter results will be impacted by reduced levels of wireless project activity and thus is expected to be slightly dilutive to continuing operations adjusted earnings per share.

If you do the math, our guidance for the fourth quarter translates to continuing operations adjusted EBITDA margin of 9.1% compared to 10.1% for the third quarter of 2014 and 10.6% for the fourth quarter of last year. Excluding the impact of acquired WesTower operations, we would have expected fourth-quarter EBITDA margins to approximate third quarter 2014 levels. Our estimate for full year share count for diluted earnings per share is about 86.3 million shares and 85.8 million shares for the fourth quarter.

Remember that our share count for earnings per share purposes can fluctuate up and down with our stock price because of the accounting for remaining $100 million convertible notes which will be settled in December. We plan to repay the principal amount of these notes in cash and will issue shares for the premium value or the conversion feature of these notes. Lastly, due to significance of the impact of the WesTower acquisition, we have issued preliminary 2015 guidance ranges earlier than usual.

We will update this guidance at our typical timing when we report our year end results and have more visibility. For 2015 we expect that revenue will grow 13% to 17% over expected 2014 levels to $5.2 million to $5.4 billion and that continuing operations adjusted EBITDA should approximate 10% of revenue or $520 million to $540 million. We also expect continuing operations adjusted diluted earnings per share in the range of $2 to $2.15 per share.

In summary, we are excited about our prospects in 2015 and beyond and look forward to capitalizing on the numerous growth opportunities in the markets we serve. That concludes our remarks, and now I will turn the call back to the operator for Q and A. Operator?

(Operator Instructions)

Andrew Kaplowitz, Barclays.

Solid quarter. Jose, as you know, there's been so much noise on wireless spend, even since your last earnings call. Can you talk about whether the expected wireless spend in 2H 2014 has trended to your revised expectations from the summer? And then, you've mentioned in the past that you thought wireless spend could rise to $1.2 billion next year. It was about $900 million this year. Can you talk about what's implied in your early guidance here in wireless and, with your largest customer spend down in 2H 2014, what gives you the conviction that you will see growth in wireless ex acquisitions in 2015?

A couple of things. First, from our expectations of what the second half of 2014 would look like, based to what they're playing out to, it's almost exactly as we expected, so there's really been no changes. I think we had a good understanding as more information came out in the second quarter, we adjusted our estimates for the balance of the year, and, again, the estimates are playing out -- or the actuals are playing out almost exactly to the estimates.

When we look at what we've embedded in guidance, we've probably taken a slightly moderated view on that, so we're probably going to do about $950 million this year in the business, pre-WesTower. We said WesTower we expected to be about $400 million next year, and I'd say embedded in our guidance right now is about $1.5 billion, maybe slightly higher than that for full-year 2015, and we feel real comfortable with that.

One, it's driven by our existing customer -- obviously AT&T, which is our biggest customer -- but we're also seeing a lot of opportunities outside of them for further growth with other customers. So, again, we're very encouraged about the market. We think that capacity and data are still massive issues that are being dealt with, and it's going to create an enormous amount of opportunities for us, not just in the short term but in the long term. We've said it a couple of times, we think the combination of the businesses makes it a very unique play.

We really don't think there's anybody like us in the country. And as some of the larger carriers are trying to determine what they do, we think we are going to bode really well in that discussion.

Okay, that's helpful, Jose. Stepping back, though, this is the first time you've given guidance at this point since I can remember, and I know you've said it's because of WesTower. But, how do we think about the -- your conviction in the guidance, given it's this early? Is it more conservative, given it's so early, or does it help you that oil and gas looks like it started to pick up here? You've got backlog up quarter over quarter, and you've got these new awards here that will hit in 4Q. Is that also giving you confidence to come out with guidance this early?

Look, we're trying to do the best job we can in terms of identifying the future opportunities in the Company and the direction where we think we're heading. The challenge for us as an entity, and even as individuals, is 2014 was a very frustrating year in that we see what's coming. We think we have very clear visibility amongst a number of our different businesses of what's coming, and we can't wait for it to get here, because it's really exciting.

We can't talk about it all because a lot of it isn't done yet, but we see what's coming on the horizon. And I think, in a small way, we're trying to really show what our numbers are, what we think we can absolutely hit for 2015. And even at those levels, we think we're pretty undervalued. So, to the extent that we can execute and take advantage of the opportunities that are ahead of us, we feel really good about where we are as a business.

That's helpful, Jose. Thank you.

Tahira Afzal, KeyBanc.

Good quarter, folks. I guess first question is really on EBITDA margin for next year. If we were to strip out -- and George gave a nice sample of the fourth quarter and what things look like outside of WesTower, could you talk a bit about what's in your initially embedded guidance ex WesTower for 2015 margins?

If you kind of break them out, power gen should continue to perform, we actually expect it to perform a little bit better in 2015 minutes than it's performed in 2014. We're probably just slightly under where we would have expected or wanted to have been. Electrical transmission should do well. Again we're investing -- we talked a little bit about our investments in the Canadian space, which are probably going to continue to be a drag, at least through the first part of 2015, slightly, from a margin perspective.

When we look at our oil and gas business and we look at our performance in the second half of this year, I think until there's some large awards and some things change in that business, I think that should be the expected levels of margins going forward into 2015. And, when you look at our communications business, our margins are actually getting better here, even in the fourth quarter. When you do take WesTower into account, it does drag the margins down, because it's more of a turnaround story, and we're expecting lower margins going into 2015.

Got it. Okay, Jose. Second question, it's more for George, if you're looking at -- George, you said you expect strong free cash flow for next year. And I guess you've opened up the Pandora's box in terms of what that actually means, in your perspective, as you look at the business, when do we start seeing free cash flow approximate your net income levels as you look out over the next few years?

We said that we expect full-year 2014 cash flow from operations to exceed 2013 levels, which means we expect to have a strong fourth quarter in terms of cash flow. Obviously, the quarterly numbers in terms of cash flow are dependent on timing of project closeouts and individual billings and whatnot, so they can jump around a little bit. But we definitely expect an increase this year, and we would expect a continued increase going forward into next year. As far as the capital spend, you saw we moderated our capital spend somewhat in the second half of this year.

We're not giving direct guidance in terms of what our capital spend for 2015 would be, but I would think it would be similar to the overall 2014 levels, maybe a little bit of an increase but not that much. The reality is that we definitely expect to generate improved working capital management on the WesTower side. We've indicated that, and we expect to get some improvements there. So we think that'll also give us some improved cash flow going forward.

Got it. Good quarter, folks, and thank you.

Alex Rygiel, FBR Capital Markets.

Nice quarter, gentlemen. Jose, the market's somewhat skittish on gas prices and trying to connect the dots with regards to possible slowdown in capital investment in pipe. Can you comment on just that broader view? Are you seeing any of your customers push to the right, pipeline projects because of this recent weakness in gas prices? And then, secondly, can you go into a little bit more detail about pipeline opportunities, breaking apart Canada, the US, and Mexico, and talking about each one respectively?

Sure. We can say, unequivocally, our customers are still very active on the projects that they've been discussing for a long time. We know that, on a number of those projects, pipe's been ordered, there's been significant dollars already spent and committed to projects, so we think the viability of those projects going forward is extremely high. I can't say that there won't be any projects that would -- that aren't going to get canceled because of what happens to oil prices at any level. We don't know, right?

There could be projects out there that ultimately don't happen. But what we can say is, there's so many projects that we know of that are happening that it's almost irrelevant, because, and we've said it a couple of times, the amount of projects that are being planned are almost -- are going to be very difficult to find ways to all get executed, based on the capacity and the demand issues. There is a staggering number of projects on the table that are going to be built over the next few years, so we feel really good about it.

We do break the market up between the US, Canada, and Mexico. The US market, again, we have great visibility. We think it's going to be a fantastic market, an enormous amount of growth, but it's slow coming. We're going to struggle in the fourth quarter in the US. It's embedded in our guidance. We're going to see an organic slowdown in our business.

We finished some long-haul projects here in the third quarter, and a lot of the work that we've won, some of the announcements that we made about Precision, those are projects that don't really start until the beginning of 2015. Even in 2015, we think it's going to be much more active as the year progresses. So, the US market's in great shape. It's coming, and when it gets here it's going to be a long cycle that's going to keep us all busy. Canada is also an active market, both from a midstream and a long-haul perspective.

We've done fairly well there over the last couple of months. We actually expect -- embedded in our guidance is probably more growth in Canada right now than there is in the US, and that's all based on timing. And probably embedded in our guidance is very little or any work in Mexico, of which we think there is a number of opportunities that we're currently chasing that are very sizable that if we're lucky enough to win any of them would have a -- could be a dramatic effect to our guidance for 2015 and 2016.

Can you also update us on the Pacer acquisition and the progress over the last quarter or so that you've seen with it?

They're doing great. They're picking up work nicely from a backlog perspective relative to their burn. They're seeing a lot of opportunities, so it's actually -- it's right on plan.

Perfect. Thank you.

William Bremer, Maxim Group.

Nice quarter, gentlemen. Staying with pipeline right now, you sort of mentioned -- and congratulations to the Precision team, landing $300 million in long haul, very nice. You mentioned they were starting in 2015 here, what are some of the completion dates, if you don't mind? That's the first question. Secondly, you went into a little bit of Mexico, can you give us a little background in terms of how quickly projects flow [through]there, is it a little different than here, and what can we expect on that front?

From the pipeline awards that we announced subsequent to quarter end, those are all projects that will be completed in 2015 -- that will start in 2015 and complete in 2015. As it relates to Mexico, it is different. Mexico obviously has undergone significant energy reform, there are a number projects that are currently out bidding.

Some have -- they started some work earlier this year. There's a lot of engineering and -- some of these projects are full-term key, so you're going to end up doing everything from engineering to procurement to actual construction. So, different firms are active at different points of time. But it's probably a little bit longer of a sales cycle. I think by the time -- and every project's different. There are some projects that are ready for construction, but most of them are probably a little bit earlier from a planning perspective, so they're going to be awarded. And once they're awarded it'll probably take a little bit of time for revenues to really impact in any significant way.

Thank you. And then, my final question is on the margins for the pipeline. We're starting to see better pricing, the quicker book and burn on the long haul that you just mentioned, is it safe to assume that EBITDA margins will be up, year over year, from 2015 to 2014?

Look, I think we're feeling better about it, we definitely think pricing is improving. The challenge in the business, and what's really going to drive margins to what we've been able to historically see on a high end, is utilization. The fact that, for example, if we look at 2014, we're seeing a slowdown in the fourth quarter, right? That slowdown isn't just a revenue issue. It obviously affects our margins. It affects our utilization. So, to the extent that we can keep people busy consistently, it really improves margins. If we can consistently keep everybody busy in 2015, margins are going to be a lot better than 2014.

We think there's going to be a little bit of volatility there, so we're encouraged by where margins are going in 2015. But I don't know that -- our guidance -- our current guidance does not anticipate a significant increase in the margins in 2015 versus 2014.

Okay, Jose. Thank you.

Jason Wangler, Wunderlich securities.

Nice quarter. Just curious, I know there's not a lot of color to probably be given on the 1-gig work that you already have a backlog, but if it can maybe even be a little bit still not too colorful, is that one big project, is it in one region or -- and is it with one customer, or is there a lot of different work? I know you announced the contract last time, but maybe just as nonspecific but specific as you can be just to kind of get a feel for what that is.

We're working currently for multiple customers. The large award that we mentioned is more in line with one customer, but there are opportunities with multiple customers right now that we're very encouraged by. And, again, we think it's a huge opportunity with -- it's an opportunity that's going to accelerate over time. And I think it's going to completely transform our wireline business over the next couple of years.

I appreciate that. And, George, maybe for you, on the financial side, obviously you've walked through with now the acquisition and what you have, could you maybe layout the options you're looking at as far as what you want to do with the balance sheet, in terms of whether it's terming out debt or the things you're thinking about there, just to give us color on that?

We announced, obviously, yesterday in the Q that we did a $75-million term loan with our bank group. We're certainly evaluating different levels of term-loan borrowings that might increase that $75 million a little bit further to ensure we have the right kind of liquidity going forward for future growth and take advantage of all the opportunities that we see. As we think about our debt structure going forward, that's our probably most likely scenario.

We obviously look at interest rates and environments. We're always evaluating that to determine whether or not you change your mix of fixed versus floating, and that sort of thing. But there's nothing I would comment on directly today. That's something that we're always evaluating and we continue to look at.

I appreciate it. Thank you, guys.

Noelle Dilts, Stifel.

First, some of the questions have touched on this a bit, but it looks like there's a disconnect between what looks to be very good oil and gas backlog growth and this additional $300-million job you booked post the end of the quarter, which is sizable. Can you just explain a little bit more what you mean in terms of when you say you aren't anticipating a significant increase in mainline work until the end of the year in your 2015 guidance, because it seems like some of these projects you've booked would, I think, support a stronger first half than maybe what we're thinking heading into the quarter?

Couple of things: one, the $300 million is more than one project; two, we obviously feel great about where we are, given this point in time. So, the fact that we're going into the year with that kind of backlog, and the awards and the recent activity that we're seeing makes us feel a lot better about 2015 than maybe where we were sitting six months ago or a year ago. It always feels good to go into a year with good backlog where you know that your business is going to be supported. So, we feel really good about that.

The flip side of that is, we had a very good 2013 relative to pipeline construction, and we had a lot of work that flowed into the beginning of 2014, so we went into 2014 with a lot of backlog as well. So, a lot of this backlog, quite frankly, is replacing some of the work that we had previously done in previous years. I wouldn't say it's additive at this point. Again, the good thing is activity levels continue to be really high. So, to the extent that we can continue to win things, it could change our outlook and make us feel even more positive than what we feel today.

It's a step in the right direction. But, we have a big pipeline business, so, the reality is, we need to win a lot of work every year to continue that business at current levels. We expect to do it. We absolutely expect that business to grow over time. The opportunities are there for that business to get substantially bigger than what it is today, but I still think that we're a little bit out. We said it a couple times on the call today, permitting and environmental issues are delaying projects. And when this cycle starts, it's going to start in a big way, and it's going to last for a long time. But we don't think it's there yet.

Okay. My second question is -- really, I thought it was interesting that you noted that you set up a transmission operation in Canada, can you talk a little bit about your strategy there? Are you looking to pursue larger projects or more small-to-medium projects? And then, along the same vein, you've talked in the past about trying to move into the Canadian mainline market, is that now something you're thinking you maybe could you organically?

We talked a little bit about it when we acquired Pacer. We thought that Pacer had certain aspects of the business that would make it easier for us to penetrate the transmission market in a faster and better way. Over the last quarter or so, maybe a little bit longer, we went and we opened an office -- specifically a transmission office -- to service the Canadian market. That office has grown for us.

We've got over a dozen people in that office today -- engineers, project managers. We're having a lot of dialogue around projects, going after a number projects. So we feel really good about our ability to grow that business organically over time, obviously using some of the Pacer assets to help us as well. So, we're encouraged about what we're seeing.

It's a very active market. It's a market where we think there's opportunities for new entrants. So, it fits us well and it's kind of similar to how we feel we started in the US market and the things we did to penetrate the US market a number of years back. So we feel good about it. From a mainline pipe perspective, we've said all along we do believe we can do some of that organically.

We're seeing some -- we're having a little bit of success there. We're currently working on a larger project than we've typically historically worked on. We've got some other ones that we're currently going after, so we're encouraged. There's some activity there. We haven't talked a lot about it, and we're probably not going to give much more detail, but there are some good opportunities for us in that market as well.

Great. Thanks.

Dan Mannes, Avondale Brokerage.

A couple quick follow-ups: first, on the third quarter as it relates to the oil and gas business, margins held in pretty well year over year, in spite of -- you had mentioned some previous issues on maybe little bit of margin contraction plus what looks like a mix of less long-haul work in the third quarter. Can you give us a little bit more color on -- were there any benefits as you completed the big job, or maybe did you get any -- were the margins on Pacer better? Maybe just help us out a little bit on the margins in oil and gas for the quarter.

It was broad based. We didn't have any significant one-time pickups or anything like that, that drove margins, so it wasn't single job based. Our Canadian operations as a whole, not just Pacer but including Big Country, are performing well. They had good quarters. Our US operations did well.

We were completing a large long-haul project that kept driving revenues through -- from a long-haul perspective, through Q3. Our shale plays -- our midstream plays did much better than they had done in the previous quarters of the year. So we had a solid quarter. Going into the fourth quarter, we expect some of the same.

We are going to see a slowdown in long-haul work as we transition from the project we finished to other projects that'll have a slight impact to margins. But, quite frankly, we're expecting margins in the fourth quarter of this year to be similar to what they were in the fourth of last year, which was a pretty active quarter for us. So we're upbeat. We'd like to see higher revenues. We have the capacity to do a lot more work. And, had we had the work in the fourth quarter to do that, you would have seen a sizable, in my mind, uptick in margins on a year-over-year basis. And hopefully, as 2015 plays out and we can pick up work to keep busy, we'll begin to see that.

Sounds good. And then, on the transmission business -- this kind of gets overshadowed by some of the larger businesses you're in, but you've grown this pretty nicely over time -- backlog's been trending down a little bit as you're starting to work on some of the big projects you previously won. Can you talk about maybe some of the US bidding opportunities you see going into next year, after what's been a little bit of a slow stretch in terms of large project awards?

We feel the same way. With that said, there are a number of projects that are out there that we think are going to be awarded, definitely within the next 12 months. We feel good about our ability to get some of those. And, our idea in the business isn't to maintain the levels we're at -- based on the workload that's out there, we think we can continue to grow that business. So, our expectation of going into 2015 is that we'll continue to see growth in that business, hopefully double-digit growth. So, we're excited about the prospects in that business.

If you'll indulge, me one last quick one on electric. The margins at 10%, how much was that negatively impacted by the Canadian operation? Because I guess we had thought this was going to be trending up a bit more over time.

Dan, the majority of the difference between this year's rate and last year's rate was due to the investment. So, we would have run slightly over last year's levels, in the third quarter, had it not been for the start up of the Canadian operations.

But, you've targeted certainly margins better than that historically.

We have. And, what we said all along is, we continue to grow the larger part of that work so that the bigger jobs, the more complex jobs -- we do a lot better on those from a margin perspective than we do on some of the smaller work. And, I think, as you see us going forward, you're going to see more of the business convert to that. But we're still doing a lot of smaller-type projects that are negatively affecting margins.

Okay. Thank you.

Adam Thalhimer, BB&T Capital Markets.

One question on communications and one on pipes. On communications, Jose, can you -- you gave some nice color on wireless revenue assumptions in your guidance, can you talk about what you're expecting on wireline? And then, also as it relates to the 1-gigabit opportunity, do you envision doing work for cable companies as well?

I'll answer the last part of the first -- we'll work for anybody, is the right answer. There is a lot of work out there, and we're going to chase any customer that has a significant spend. We're currently not doing anything for cable companies, so I don't want to overstate it. But the opportunity's there, and if it's there and we can provide a service, we're going to try. Again, we're very bullish on it.

There's a lot of players in that market that we think are going to be active. And, again, we think we're in a really good position. As it relates to growth, we're expecting significant growth in that business going into next year, in the very high-double digits. I'm not going to say we expect to double the business, but it's very strong growth going into 2015 versus 2014.

Okay. And then, on pipe, how much of the business today would you say is gathering systems versus long haul? As we go into 2015, is there -- because of lower oil prices, is there a decline in the gathering work that gets offset by the long-haul uptick?

We kind of view the business in three sections, right? It is gathering, midstream, and long haul. From a gathering perspective, it's a very small piece of what we do. It's probably less than 10%, slightly over 5%, so somewhere between 5% and 10% on an annual basis. And, the things that we're doing there, we don't think they're going to be greatly impacted.

So, we feel good about that portion of the business, again, it's not very big. And we think the rest of the business is pretty well insulated to it as well. So, we're not seeing any slowdown. There's so much activity out there, there's so many projects on the board that, quite frankly, we're trying to stay ahead of all of it, which has been a challenge.

Okay. Thanks, Jose.

Vishal Shah, Deutsche Bank.

You guys have talked about improving margins in the power gen business in the back half of the year, can you talk about whether you're going to see the same kind of margin profile in power gen in the fourth quarter so that you can get to the 2012 levels, or is it going to be much more gradual in 2015?

Look, we're slightly underperforming where we would have hoped to have been in that business relative to what we said earlier in the year, so we expect to be slightly under that 5% goal that we've set for ourselves. With that said, some of the challenges we face in that business, we've had some jobs that have been very negatively affected by weather. Not to make excuses -- it is what it is.

When we look at where we're sitting in this business relative to 2015, again, we're really excited, because we generally don't have the kind of visibility that we have today. We've got a large portion of our 2014 annual revenues booked for 2015, so we definitely expect the business to have as good or better of a year as it did in 2014. And we're hoping that, at a minimum, it does what we expected the margins to be in 2014. So we do expect margin appreciation in this business from 2014 to 2015. And, hopefully, it's -- we're going to try to generate -- we're going to try to maximize the profit share to the highest level we can get them.

What kind of assumptions do you make on the PTC extension and things like that on the regulatory front for the wind business? And also, I think you've mentioned that you may get an additional award in the 1-gigabit fiber option before the year end. Is this still the case?

On the -- we're not making any assumptions on PTC. The reality is, right now, projects have until the end of 2015 to complete. Quite frankly, we're even seeing some projects right now that are being planned for 2016, which is really weird to see this far in advance, but we're encouraged by it. But in our 2015 assumptions, we're taking no position on PTC other than the one that currently exists.

As it relates to gigabit, again, we're obviously very excited about the projects that we've won. We do expect further rewards before year end, and again, we think we're just in very early stages. We think, over time, the awards there are going to be very large and our opportunity to grow that business are going to be substantial.

Thank you.

John Rogers, DA Davidson.

Jose -- sorry, again just on the wireline and the wireless business, in terms of the customers and how the orders come in for that business, the wireless business it seems like you don't have quite as much visibility, they have budgets but then you wait for the call out work. With the wireline business, is it lumpier? Do they give you longer -- or, I know the 1-gigabit's new, but you expect bigger awards to come in those chunks?

Two things. One, on the wireless side -- just to reiterate, we obviously work for multiple customers, and it's different with each customer -- but when we look at our largest customer, historically we have had very predictable revenue streams. So we get an expectation of what work levels are going to be and, up until this year, those levels were very accurate. Obviously, we had issues in 2014, and there was changes in 2014 that were, in our minds, very different than what had happened in 2013, 2012, 2011, 2010, 2009 -- since we've been in that business.

Up until this year we had incredible levels of visibility, and we executed to those levels of visibility. We think 2014 was an aberration. We think when we get to 2015, it will look a lot more like it did in previous years, not like it did in 2014. So, we actually feel really good about our ability to forecast and manage our business in wireless. Again, every customer's different -- some are more project related where you have a project, you start and you stop it. And some of it is more order based. But again, it's typically a very -- a business where visibility is high.

Again, not the case in 2014, but we expect it to be that in 2015. When we look at wireline -- again, wireline is a pretty broad business. When we look specifically at the gigabit opportunities, we do expect them to come in chunks. We expect large awards to be program and project based, so you're going to get awards -- and, again, every customer's going to be different, but you're going to get awards to start on a project and complete.

There's going to be a definite start and a definite completion -- and whether that's based on miles or homes or whatever it is, and you're going to work on that project over a period of time until you complete it.

Okay. Thank you. And, if I could follow up on the pipeline side of the business. How much of your work now is associated with oil projects, including the work up in the oil sands? And, as you think about 2015, the projects that you see coming, especially into the back half, is that mix shifting? I would assume more towards gas, or are we not there yet on the gas side?

There's so many projects that it's hard to answer that question, because we don't necessarily know what we're going to win, right? So, there are a number of both liquid and gas projects that are currently -- that we're in talks with, and I can't tell you today the breakout of what we actually are awarded or are able to win, what that breakout's going to look like.

There is activity on both, currently, and we do think -- and, obviously, if you think about Mexico, Mexico is probably a lot more gas based because their whole business model is around buying gas from the southern shale, so there just happens to be more activity down there. But, across the board, it's a mix, and I can't give you a clear indication as to what our build will look like in 2015.

Okay. But, currently?

Currently, I'd say that our mix is probably a little bit more liquids based, just based on where the prices have been over the last year, two years.

Okay. Thanks, Jose. Appreciate it.

Noelle Dilts, Stifel.

Just trying to do some math on your guidance, pulling out some estimates around Pacer revenues and WesTower, it looks like your organic growth guidance was maybe flat to up 4%. Jose, I know in the past you've been helpful in walking us through a bridge on how to get to that revenue. Maybe you could talk a little bit about where maybe you're -- you've referenced this throughout about the call, but maybe more specifically about where you're expecting growth, and maybe where you have some operations forecast down in 2015?

Again, to reiterate, it's an early estimate, and obviously we think we're doing this -- we're obviously doing it earlier than we've ever done it before, but it's a best guess with what we have today. On a high end, we think our communications business is going to be roughly $2.6 billion; from an oil and gas perspective, probably just shy of $2 billion. Our transmission area --

We're going to show next year, in terms of organic growth, we certainly expect organic growth to come on the wireline side. We're seeing that with the awards in the 1-gigabit fiber, so we would expect to see some nice growth there, Noelle. We've talked about our wireless growth as well. We'd expect to see some organic growth on that front. I wouldn't say we're planning much in the way on the install-to-homes side. We'd see little bit of growth on the home security front. So, on the communications front, we would expect some good overall organic growth.

Okay. And then, a quick modeling question, of the $191 billion -- million of D&A that you're forecasting for 2015, I was curious how much of that is tied to WesTower, and if any of that is -- if there's any purchase related -- purchase accounting-related intangible amortization that might be rolling off on (multiple speakers) past that?

Well, we've got -- obviously, in the guidance we're giving for next year, WesTower is included in there, as well as an annualization of Pacer. And both of those combined give you a pretty good increase, year over year, in terms of raw dollars on the D&A side. The WesTower number at this point's our best estimate; obviously, we'll refine it as we get further along and actually go through the actual purchase price allocations. But they're both included in that guidance.

Okay. Thanks.

We appreciate everybody joining us today and look forward to updating you on our next call.

This concludes today's conference. Thank you for your participation.