MasTec Inc (MTZ) 2014 Q4 法說會逐字稿

Welcome to MasTec's fourth-quarter 2014 earnings conference call, initially broadcast on February 27, 2015. Let me remind participants that today's call is being recorded.

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

Thanks, Becky, and good morning, everyone. Welcome to MasTec's fourth-quarter and 2014 year-end conference call. The following statement is made regarding the Safe Harbor for forward-looking statements pursuant to 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 represent the Company's expectations on the day of the initial broadcast of this conference call, and the Company undertakes no obligation to update these expectations based on subsequent events or knowledge. Various risks, uncertainties, and assumptions are detailed in our press release 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'll be discussing the continuing operations adjusted financial metric as discussed in 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 measure not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release or the investors and news sections of our website at mastec.com.

As we announced in our press release last night, the audit committee of the Company's Board of Directors, with the assistance of independent counsel, is undertaking an independent review, primarily to determine if certain cost-to-complete estimates -- currently believed to be in the range of zero to $13 million -- which were recognized during the Company's third-quarter 2014 should have been recognized during the second quarter of 2014.

The Company currently believes that the review will not negatively impact its full fiscal-year 2014 results. Because the audit committee's independent review has not yet been completed and no complete conclusions have an established, the Company expects to extend until March 17, 2015, the filing date of its annual report on Form 10-K for the year just ended, as permitted by SEC rules. We will unfortunately not be able to provide any more information on this issue today.

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

I will now turn the call over to Jose. Jose?

Thanks, Marc. Good morning and welcome to MasTec's 2014 year-end call. Today I will be reviewing our fourth-quarter and full-year results as well as providing my outlook for 2015 and the markets that we serve.

Before getting into details, I'd like to make some observations about 2014. While our performance was in line with our expectations, it was a challenging year. First, we were expecting significant wireless growth with the award of the dedicated crew program in late 2013, and we aggressively ramped our wireless resources for what we expected to be a strong year of growth.

As you know, those revenues didn't materialize. And our cost structure left in place had to be adjusted, which created margin pressure for the balance of the year.

On a full-year basis our wireless business was flat year over year in terms of revenue, but down significantly in earnings because of the cost pressures associated with this ramp. Despite challenging market conditions, we expect significant margin improvements in 2015.

Also in 2014, we experienced negative organic growth in our oil and gas business, as 2013 was a very good year with higher levels of large-diameter projects versus 2014 -- where larger projects, as expected, didn't materialize. Despite these challenges, we met our expectations, and we are encouraged about our future.

While we are managing through the uncertainties of commodity prices, our visibility for the balance of 2015 and, more importantly, into 2016 is very strong. There are a significant number of broad-based opportunities across a number of different markets that we serve, which we expect will transpire over the coming and will solidify our views going forward.

Now, some full-year highlights: 2014 revenue was up 7% to $4.6 billion. 2014 continuing operations adjusted EBITDA was $425 million. Full-year cash flow from operations was $322 million. And 2014 full-year continuing operations adjusted EPS was $1.57.

For the fourth quarter, revenue was $1.24 billion. Fourth-quarter continuing operations adjusted EBITDA was $112 million. Fourth-quarter cash flow from operations was $241 million. And fourth-quarter continuing operations adjusted EPS was $0.40.

In summary, while we performed to expectations, we are disappointed with our results for 2014. We expected higher levels of growth. However, with proper execution, we have significant opportunities ahead of us. We strongly believe that we are uniquely positioned to take advantage of these opportunities that our markets afford us.

As we've seen over the last few months, 2015 will bring its own set of challenges. Declining commodity prices and currency exchange rates are putting pressure on some of our markets. However, we are actively pursuing and engaging on a number of opportunities that will impact our business in the second half of 2015 and, to a much greater extent, in 2016 and beyond.

Now I would like to cover some industry specifics. Our communication revenue for the quarter was $561 million versus $498 million in last year's fourth quarter, and $2.041 billion for the year compared to $1.963 billion last year. However, as described earlier, our communications EBITDA segment margins went from 12.6% in 2013 to 9.9% in 2014. This drop was primarily related to us ramping up our wireless resources for the growth we were expecting. Again, we expect a significant improvement in our communications segment EBITDA margin in 2015.

Our installation to the home revenue was up 10% in the fourth quarter of 2014 versus 2013. We are proud of our efforts in expanding this business during the last year and, more importantly, our success in diversifying our customer base. We believe we are the largest third-party independent fulfillment Company in the United States, with broad geographic coverage. We are excited about a number of different opportunities with multiple customers who are looking for nationwide fulfillment services.

As it relates to wireline project, we're very bullish on the growth of 1-gigabit opportunities. We have now been awarded more than $300 million worth of gigabit projects, of which only the 18-month estimated revenue is included in our backlog. We expect activity levels to increase throughout 2015. We expect further awards in 2015 and solid revenue growth in 2016.

Our wireless revenue was up about 11% for the year but about flat organically. Our recent acquisition of WesTower significantly enhanced our geographic service offering, which we believe strengthens our competitive position as we continue to diversify our customer base. For our largest customer we increased our footprint during the fourth quarter into three new states. While their capital expenditure levels are reducing in 2015, we are comfortable that we are rightsizing for the expected levels of work. This puts us in a very different position going into 2015 then we faced in 2014.

We believe that carriers will continue to use their networks as a point of differentiation, and data demand and growth will continue to drive the required levels of network spend. Wireless networks continue to grow and evolve, and we play an important part of that evolution.

Revenue in our electrical transmission business was $147 million versus $107 million in last year's fourth quarter, and $474 million for 2014 compared to $429 million in 2013. This was our highest level of quarterly revenues since we started the transmission business. We also expect double-digit growth in 2015. We are pleased with our progress.

While we wait for larger projects to be awarded, we are winning a number of smaller jobs, and in the process expanding and diversifying our customer base. Many of these same customers will be awarding much larger projects, and our presence on their system is important.

Moving to our power generation and industrial segment, revenue was $94 million for the fourth quarter versus $57 million in last year's fourth quarter, and $357 million for 2014 compared to $294 million in 2013. Backlog was up nicely both year over year and sequentially.

We expect revenue growth in 2015 of approximately 10%. Again, customer and industry diversification has been an important goal for us, and in 2014 approximately 19% of our revenues in this segment came from nonrenewable sources.

Our oil and gas pipeline segment had revenues of $436 million for the fourth quarter compared to revenues of $494 million in last year's fourth order and $1.738 billion of revenues for 2014 versus $1.628 billion in 2013. As expected, large-diameter long-line construction activity in 2014 was significantly lower than in 2013, which helped lead to a margin reduction from 13.3% in 2013 to 11.1% in 2014.

For 2015 we expect a strong market in the US, improving toward the second half of the year, offset by some recent weakness in Canada. Lower oil prices are impacting our Canadian business in a much more direct way than in the United States.

In 2014 our pipeline business in Canada was approximately $695 million. It's important to note that this only includes a partial year for our Pacer acquisition. Between the effects of oil prices and the Canadian exchange rate, we are expecting 2015 revenues for our Canadian operations of approximately $550 million. This impact is the primary driver of our updated view and guidance included in our press release.

Despite this issue, we are confident in the longer-term growth capabilities of our Canadian markets. Late last year we were awarded and completed a larger-diameter pipeline project in Canada and believe that to be an excellent opportunity for growth in both the near and longer-term. Outside of Canada, pipeline construction opportunities are at very high levels. During the fourth quarter we won and signed approximately $500 million of new awards, most of which will be completed in 2015.

Subsequent to year end, we are having an excellent quarter of new bookings, which we expect to talk about on our first-quarter call. Our visibility into the pipeline business for 2016 and 2017 is excellent and, quite frankly, improving.

In addition, we are beginning to see the fruits of our efforts relative to the opportunities in Mexico. Over the last year we have been very public about the growing opportunity to compete for projects relating to constitutional energy reforms in Mexico. Today I'm very excited to announce an unprecedented opportunity for MasTec. As a member of a consortium with energy transfer partner and Carlos Slim's Grupo Carso, MasTec has been awarded two large and important projects by CFE, the Federal Electricity Commission, which is the Mexican government's state-owned entity in charge of generation, transmission, and distribution of electricity.

Both projects are at the forefront of CFE's ability to significantly reduce electricity tariffs as the utility shifts towards cleaner and cheaper sources for electricity generation, such as natural gas. At the end of 2013 the commercial tariff in Mexico was $0.23 per kilowatt hour, while the tariff in the US was half that amount. The first project, Waha to Presidio, consists of the Waha header system with a capacity of 6 BCF per day and the capability to connect over 12 pipelines, and the construction of the Waha-Presidio pipeline, with a capacity of 1.3 BCF per day through a 143-mile, 42-inch pipeline, which MasTec will build. The pipeline will interconnect at the US-Mexico border at Presidio Ojinaga.

The second project, Waha to San Elizario, consists of the construction of 194 miles of 42-inch pipeline, also with the capacity of 1.3 BCF per day, which MasTec will also build. Each project represents a 24-year contract with CFE to provide transportation services of natural gas from the United States to Mexico. The consortium is responsible for the design, development, construction, and operation of the two-pipeline system.

MasTec plays two significant roles on these projects. As a contractor, MasTec will help build these pipelines with Energy Transfer as the customer, as they are the project's construction manager. As a member of the consortium, MasTec will hold an equity interest in these projects for their useful life.

Together, the two projects in total represent a net present value of over $1.3 billion, as calculated by CFE. Both projects, which are in the United States, will begin construction in either late 2015 or early 2016 and must be in service by 2017. CFE has also announced over a dozen similar projects as part of energy reform, which will all bid over the next year.

To recap, despite the challenges we faced in 2014 and the current uncertainty around commodity prices in 2015, I am convinced that we have positioned this Company in the right markets at the right time. I am also convinced that 2014 and even 2015 is not reflective of our earnings potential. We have excellent growth opportunities in our oil and gas, transmission, fulfillment, wireline, and wireless markets.

Over the last year we faced some adversity, and market trends haven't helped. That's not an excuse. I'm extremely proud of MasTec's accomplishments. I would like to take this opportunity to congratulate and thank the men and women of MasTec for their commitment to safety, their hard work, and their sacrifices in making 2014 another solid year. Our people are our most important asset, and I'm truly looking forward to showing you what they can accomplish.

I will now turn the call over to George for our financial review. George?

Thanks, Jose. Good morning, everyone. Today I'm going to cover fourth-quarter and 2014 full-year financial results as well as our 2015 guidance update. I will also cover our cash flow, liquidity, and capital structure.

As in our previous calls, when we discuss our financial results and guidance, we are discussing non-GAAP continuing operations, adjusted earnings, and adjusted EBITDA. And as Marc already mentioned, reconciliations of all non-GAAP measures can be found in our press release.

As previously indicated, continuing operations adjusted results for the fourth quarter of 2014 and fiscal 2015 exclude the impact of the acquisition integration costs related to the WesTower acquisition. We incurred approximately $5.3 million of these costs in our fourth quarter of 2014 and anticipate approximately $15 million of these costs will be incurred primarily during the first half of 2015.

These costs are principally comprised of employee separation, lease and equipment exit costs, as well as one-time training efforts to implement our systems and processes. Our integration effort for these operations is proceeding as planned, and we anticipate this should be substantially completed by the third quarter of 2015.

Before I get into detailed remarks, here are some highlights of our fourth-quarter and fiscal 2014 performance. Q4 revenue grew by 7% to $1.2 billion. Q4 continuing operations adjusted EBITDA was in line with guidance at $112 million. And Q4 adjusted diluted earnings per share were $0.02 better than guidance at $0.40 per share.

The highlight of the fourth quarter from a financial perspective was cash flow from operations, which came in at $241 million for the quarter and $322 million for the full year. This represents a 61% and $121 million increase in annual cash flow from operations versus 2013, during a challenging period in which our earnings were less than last year.

As a result of the improved fourth-quarter cash flow from operations, we were able to fund the $200 million WesTower acquisition without increasing our debt levels when compared to the third quarter. We enter 2015 with ample liquidity and solid credit metrics, despite the significant capital deployed for the Pacer and WesTower acquisitions in the back half of 2014.

Now let me get into some more detail regarding fourth-quarter results. Fourth-quarter 2014 results were better than our guidance, with continuing operations adjusted diluted earnings per share at $0.40 versus our guidance of $0.38 per share. Continuing operations diluted earnings per share were $0.33 compared to our guidance of $0.28. While our continuing operations adjusted EBITDA was essentially at our guidance, the combination of slightly lower interest, depreciation and amortization, and weighted average share count led to improved earnings per share results.

Please recall that as previously indicated, the inclusion of WesTower results for the fourth quarter of 2014 was slightly dilutive to fourth-quarter earnings per share, due to the combination of abnormally low wireless project activity during the quarter coupled with the absorption of higher pre-integration levels of WesTower operating costs. As we work to integrate WesTower into our existing wireless operations, we expect to generate cost synergies. And this will improve the operating results of our combined wireless operations as we head towards the second half of 2015.

Fourth-quarter 2014 revenue was $1.237 billion, up 7% from last year. Our communications segment revenue increased $63 million, driven by the addition of approximately $100 million in WesTower revenue. As expected and previously announced, organic wireless project revenue decreased during the fourth quarter, both sequentially and versus the same period last year.

Oil and gas segment revenue during the fourth quarter decreased 12% compared to last year, and this was primarily due to lower levels of long-haul activity this year, as last year during the fourth quarter we were in the midst of a large long-haul project. Highlights during the quarter include electric transmission segment revenue, which grew 37% versus last year; and power generation and industrial revenue, which grew 65% versus last year.

Fourth-quarter cost of revenue, excluding depreciation and amortization, as a percent of revenue was 86.3% of revenue compared to 85.1% last year, with the increase primarily caused by project inefficiencies and increased overhead rates due to lower levels of wireless project activity within our communications segment. Depreciation and amortization expense was 3.4% of revenue in Q4 compared to 3.3% last year. And this reflects the impact of capital expenditures in our oil and gas segment as well as higher levels of amortization for the WesTower acquisition.

Fourth-quarter 2014 general and administrative expense as a percentage of revenue on a GAAP basis was 5.2% compared to 5.0% a year ago. Fourth-quarter 2014 GAAP general and administrative expenses include approximately $5.3 million of acquisition integration costs related to the WesTower acquisition as well as $4.4 million in non-cash stock compensation expense.

During the fourth quarter we recorded a charge of approximately $6 million net of tax to reflect final disposition costs for assets retained in connection with the 2013 sale of our discontinued GlobeTec water and sewer operation. As of year-end 2014, we no longer have any assets related to this discontinued operation reflected on our balance sheet.

Fourth-quarter continuing operations adjusted EBITDA decreased to $112 million from $123 million in 2013. On a rate basis, fourth-quarter continuing operations adjusted EBITDA margin of 9.0% was down from 10.6% last year. And as I mentioned earlier, this includes the impact of acquired WesTower operations. Finally, fourth-quarter continuing operations adjusted diluted earnings per share were $0.40 compared with $0.53 a year ago.

Turning to full-year results, full-year 2014 continuing operations adjusted diluted earnings per share were $1.57, ahead of our guidance of $1.55. Again, this was primarily due to lower fourth-quarter interest, depreciation and amortization, and share count. Full-year diluted continuing operations earnings per share were $1.42 compared to $1.74 in 2013.

Full-year 2014 continuing operations adjusted EBITDA was $425 million at 9.2% of revenue, in line with expectations. And as we've indicated in the past, the disruption in wireless project activity that occurred in 2014 significantly impacted our communications segment profitability. And we expect lesser level of disruption in 2015 in this segment, as well as improved continuing operations adjusted EBITDA margin results.

As I think this bears repeating: full-year 2014 cash flow from operations grew 61% to $322 million compared to $200 million last year, an increase of $121 million. Our 10 largest customers for 2014 were AT&T, at 21% of total revenue; DirecTV was 12%; Enbridge was 8%; Mid-America Energy was 7%; Energy Transfer was 6%; and Duke Energy, CNRL, Plains All American Pipeline, CenturyLink and Starwood Energy were all at 2% of revenues.

As we have previously indicated, AT&T customer revenue is comprised of three separate service agreements -- wireless, wireline, and installed to home security installation services. Individual construction projects comprised 51% of our annual revenue, with Master Service Agreements comprising 49% -- and this mix is generally in line with recent trends.

At year-end 2014 our 18-month backlog from continuing operations was approximately $4.3 billion compared with $4.1 billion for both the third quarter of 2014 and the fourth quarter of 2013. This represents a 5% increase sequentially and over last year.

Backlog growth occurred in the power generation and industrial segment as several verbal project awards were finalized and signed; and, as well, in our communications segment. Communications segment backlog increased during the fourth quarter, reflecting the increase in WesTower operations, and was partially offset by lower levels of expected 2015 wireless project activity.

Now let me talk about our fiscal year cash flow, liquidity, and capital structure. Full-year 2014 cash flow from operations was $322 million compared to $200 million in 2013, a 61% increase. Cash flow from operations during the fourth quarter was $241 million compared to $71 million during the fourth quarter of last year, and that's an increase of $170 million. Strong fourth-quarter cash flow came from the seasonality of operations, some project closeout and retention payments, and the initiation of working capital reduction actions at WesTower.

Because of this strong cash flow, we were able to complete the $200 million cash acquisition of WesTower without increasing our overall debt levels. We indicated earlier in 2014 that second-half 2014 cash flow would improve when compared to the first half, and these results confirm that statement.

Liquidity at December 31, calculated as cash plus availability on our bank credit line, was $588 million, giving us ample resources for growth opportunities in 2015 and beyond. During the fourth quarter we retired our last remaining $100 million convertible notes and expanded our revolving credit facility, which had the effect of reducing our cost of capital.

Regarding our capital structure, at year-end we had $1.148 billion in total equity; $1.111 billion in net debt; and reported continuing operations adjusted EBITDA -- in other words, not adjusted to reflect the pro forma earnings benefit of recent acquisitions -- of $425 million for 2014. In summary, all of our credit ratios continue to be in good shape. And, given our expectation for continued strong cash flow from operations, we expect to continue to improve leverage metrics in 2015.

Now, as we indicated in yesterday's release, we have purchased approximately 3 million shares thus far during our share repurchase program in the first quarter of 2015, and the purchases we've made during this period have been at an average price of $18.96 per share. Our fourth-quarter accounts receivable days outstanding, or DSOs, were 87 days compared to 88 days for Q3.

Remember that during the quarter we added in WesTower's preacquisition working capital, which was much higher than our existing wireless operations. And while we began to make progress towards reducing these levels in Q4, it still negatively impacted our overall DSOs. We typically expect that our DSOs will range somewhere in the 80s, depending on the timing of project closeouts, etc.

Regarding our spending on equipment, full-year 2014 cash CapEx net of equipment disposals was $92 million compared to $110 million in 2013. The total of our full-year cash CapEx, capital leases, and financed equipment -- again, net of the equipment disposals -- was $168 million in 2014 compared to $221 million in 2013, a 24% reduction.

In summary, 2014 was a challenging year as we were faced with a sharp change in expected demand for wireless project services in the back half of the year, which significantly impacted our profitability. Despite the significance of this challenge, we still managed to deliver reasonable earnings results while greatly improving our cash flow from operations.

Now, turning to our 2015 outlook, significant fluctuations in worldwide oil prices in the latter part of 2014 and into 2015 have made forecasting the 2015 demand for our oil and gas services challenging. During the first quarter of 2015, we have recently begun to experience project slowdowns and deferrals in our Canadian oil and gas operations, and it is difficult to predict if that impact will spread. While it seems that worldwide oil prices have stabilized recently, the oil markets have been extremely volatile, making near-term estimating difficult.

Based on current market conditions, our full-year 2015 guidance revenue range estimate is $4.6 billion to $4.8 billion. Continuing operations adjusted EBITDA range is $450 million to $480 million, and continuing operations adjusted diluted earnings per share range is $1.65 to $1.87.

The 2015 revenue range represents a flat to 4% increase over 2014, with a 6% to 13% increase in continuing operations adjusted EBITDA and a 5% to 19% increase in continuing operations adjusted diluted earnings per share. Implicit in this guidance is a 60 to 80 basis point improvement of our 2015 continuing operations adjusted EBITDA margins to between 9.8% and 10% of revenue compared to 9.2% of revenue in 2014.

Also included in our 2015 guidance is a negative impact of a stronger US dollar versus the Canadian dollar on our Canadian operations. During 2014 Canadian operations translated into US dollars at a rate of slightly over $0.90, and the current exchange rates today are closer to $0.80.

Our 2015 full-year guidance assumes a tax rate of about 39%. We have slightly increased our tax rate for both our final 2014 year-end and 2015 for the impact of recently enacted tax law changes as well as the lower expected mix of Canadian operation earnings, due to a stronger US dollar.

We expect 2015 interest levels will be slightly lower than 2014 levels at about $48 million, as we benefit from the interest rate arbitrage associated with paydown of our convertible notes in 2014. We currently expect 2015 depreciation and amortization expense will grow at a slightly higher pace than overall revenue, and our rate basis will approximate 3.7% to 3.9% of revenue. And this level includes the impact of full year of both depreciation and amortization of intangibles associated with Pacer and WesTower acquisitions.

We also expect that 2015 CapEx levels will slightly moderate some from 2014 levels, with cash CapEx net of disposals of approximately $80 million and another $70 million to $80 million of capital lease and equipment financing CapEx -- for a total CapEx net of disposals of about $150 million to $160 million.

Our estimate for 2015 share count for diluted earnings per share is about 83 million shares and 83.3 million shares for the first quarter. This estimate includes the impact of approximately 3 million shares in share repurchases completed to date during the first quarter of 2015.

We currently estimate Q1 2015 revenue of approximately $1 billion, with continuing operations adjusted EBITDA in the range of $75 million to $80 million compared to $75 million during the first quarter of last year. Lastly, we expect Q1 2015 continuing operations adjusted earnings per share to range between $0.16 and $0.19 per share compared to $0.21 per share last year. And as many of you are aware, our first quarter typically is our lowest quarter in terms of revenue and overall profit levels from a seasonality perspective.

Our expectation would be that first-half 2015 revenues would grow somewhere in the low single digits over last year's levels, and that first-half EBITDA margins will be slightly below our 2015 annual expectation. This means that, broadly speaking, we are planning the second half of 2015 relatively flat from a top-line revenue expectation perspective; and this is primarily due to uncertainty in second-half project starts for our oil and gas segment services. That said, we would expect second-half EBITDA margins to slightly exceed our annual expectation due to the non-recurrence of the significant wireless project disruptions we experienced in the back half of 2014 and the expected completion of the WesTower integration.

In summary, we ended 2014 with strong cash flow generation and enter 2015 with a strong balance sheet and ample liquidity to take advantage of the numerous opportunities ahead of us. We believe we are in a great position to offer excellent, long-term growth potential in revenue, profit, and margin.

That concludes my remarks. And now I will turn it over to the operator for Q&A. Operator?

(Operator Instructions) Alex Rygiel with FBR.

Good morning, gentlemen, and nice quarter. Jose, your visibility into the oil and gas segment in 2015 and 2016 sounds pretty strong. Backlog is up year over year right now. It sounds like 1Q bidding opportunities are very, very strong. Maybe some of those projects don't start right away, but bidding activity is strong.

What is your outlook for margins in pipeline? And do you think the US pipeline operations can see some organic growth in 2015?

So a couple good questions. First, we are very bullish on the oil and gas markets, especially as we look out going into 2016, even 2017. There's a lot going on right now. It's a very active market. We would expect that as 2015 rolls along, our backlog in that segment is going to increase dramatically.

From a margin perspective, when you think about the business, last year at this time we were talking about some pressure to margins, because I think everybody was expecting the pipeline business to pick up in a big way, and it hadn't yet. I think a lot of those margin pressure subsided as the year went on. So I think margins in the business are good.

Obviously, what ends up driving margins is utilization levels. So, as you've seen in our business in 2013, we were able to utilize our resources at a higher level, especially with larger pipe work, which translated into much better margins. And I definitely see that taking place as we look into 2016 and beyond -- and maybe even in the second half of 2015. So we are very, very encouraged by that.

And I think I might have missed the last part of your question, Alex.

Yes. Can your US pipeline business grow organically?

You know, I think it will be close. I think, obviously, a lot of the reductions that we are expecting -- if we look at the overall business year over year, we think that because of the Canadian exchange rates, we will have a slight downtick to the business overall.

And it all depends on when projects start in the US. So if we get some starts in the fourth quarter, for example, then yes, I think we can have some nice organic growth year over year. If not, I think it's going to be a flattish year going into 2016, where there will be a ton of growth.

And if I can ask a second question, do you think the increase in your wireline 1-gigabit work can offset the year-over-year decline in AT&T wireless?

In 2015?

Yes.

Probably not. When we look at a lot of the 1-gigabit opportunities that we are looking at, I think there are slower starts for lots of reasons that will pick up dramatically. So as we see that business -- and there's obviously different types of players in that business, but for some it takes longer to get started. And for those, we will see a much greater ramp as we look into 2016 than we will into 2015.

Andrew Kaplowitz with Barclays.

Good catch this quarter. Jose, so, look, you guys -- as you know, you've cut guidance a couple times this quarter. And your guidance range is pretty wide, which you don't normally give. And I know you talked about the limited visibility, especially in oil and gas.

But maybe you could talk about what would need to happen for MasTec to reach the middle or higher end of the EPS range. I guess my concern is we all know there's a lot of visibility issues here this year in oil and gas. Why would we not model lower in your range versus higher in your range?

So it's a good question, Andy. Let me start maybe back, a couple months back. I think the initial look at guidance that we gave for 2015 -- and at the time we admitted it was very early for us -- we did because we had just closed on the WesTower acquisition. We thought that we needed to help people think about what WesTower did to our business going into 2015 and what it went from a financial perspective. We thought it was prudent at the time.

Shortly thereafter, our largest customer for both of those businesses -- both for MasTec's existing business and for WesTower -- they cut CapEx, which forced us to take a re-look at that time of our guidance. And we issued a press release lowering our guidance at that time. And then since that time, oil prices took, obviously, a very difficult run through the later part of the year that ended up dramatically looking different than when we issued that first guidance.

So we are very frustrated, because we think we've got a good understanding, and then we have things happen to us that are somewhat outside of our control that are -- force us to re-look at guidance. So as we are thinking about the guidance that we are providing today, we are obviously taking everything we know into account, but we are being very conservative on making any judgment calls outside of that.

So I would say that we've given a wider range than we typically do because, quite frankly, we have no intent of -- hopefully -- changing that again. So we feel comfortable with the range that we put out. I think that where in that range we end up has to do with all the opportunities we talked about. I think that -- I'm extremely excited, because I think very few times in our history have we had the amount of broad-based opportunities that we have today. We don't have opportunities in one business; we actually have opportunities in almost all of our businesses. And some are very large.

So to the extent that those play out and have impact in 2015, then hopefully we will get either to the higher end of our guidance or better. And if some of those take longer to play out, then I think we will be towards the lower end of the guidance range. And I wish I could tell you that I know, but that's kind of the reason we put out a wider range.

Okay, that's helpful, Jose. And then could we talk about the communications margin increase? I'm just curious: what do you think is under your control in terms of the increase? Is it most of what you are doing? In other words, is it just integrating WesTower? Is it ramping up the businesses -- 1-gigabit, all that kind of stuff? Do you need to take out more costs in communications, or do you feel very confident that you can get this margin increase?

Again, we're coming into 2015 very differently than where we were in 2014. In 2014 at this time we were ramping at very high levels. We were really excited about the business. We thought we were going to have a lot of growth, and we did a lot around the business to increase the number of people we had. We bought a lot of equipment for the business, so we invested a lot in that business, and obviously the revenues didn't materialize.

We were waiting to get visibility, so we probably took a little bit longer to act than what we should have. And we kind of found ourselves throughout most of the year overstaffed for the amount of business that we had, which had a big drag to margins. And I think as -- you know, fourth quarter is also a little bit skewed, because it's first quarter that we have WesTower. So margins in our communications segment were definitely negatively impacted by the WesTower acquisition.

So when we back all that out and we look at how we did in the fourth quarter outside of that, we were very pleased with our progress. We look at 2015; we look at where we are sized today relative to what we know the business is, and we don't think those issues will reoccur in 2015 versus 2014 -- which makes us feel that we are going to make a lot of progress on margins this year.

We had a very good year in 2013 relative to margins. At that time we were saying we actually thought margins could improve over time. And quite frankly, we still believe that.

Tahira Afzal with KeyBanc Capital Markets.

This is Sean on for Tahira today. So first off, I'd just like to know if you have any clarity from your telecommunications customers regarding any potential changes to spending programs in the wake of the FCC's approval of Title II rules yesterday. The bookings and revenue growth outlook you guys gave in your prepared remarks suggests that there probably isn't a big change to at least the short- to medium-term economics of network investment, but would like to get your thoughts there.

So again, it obviously was a decision that happened yesterday. When we look at forecasting for the year, again, we think we've taken very conservative views based on what we know today. It will be interesting to see -- I think a lot of customers have already put their opinions out publicly, and they differ. And I think there's a lot of people on different ends of the scale. So as we have looked at our book of business, irrespective of what decision was coming down, we didn't think it was going to affect nor our business in 2015 and, quite frankly, the outlook going forward.

All right, thanks for that, Jose. Next, moving over to midstream, could you just give us an update on the nature of your relationships with your key midstream customers as it relates to movement towards more preferred alliances or otherwise?

We typically don't do that. I think we've got great relationships with our customers. We've got a couple customers that we've obviously been doing a lot of work for. I don't think anything has changed there.

The nature of contracting in the business is changing somewhat, because there's so much work coming that I think we are having a lot more dialogue around partnerships than historically we've had. But I'm not going to get into any specifics with any particular customers.

Okay, great. Thanks for the insight, guys, and great quarter.

Jason Wangler with Wunderlich.

I'm curious on the Mexico stuff. It sounds, obviously, very exciting. I was just wondering -- obviously, and I think you walked through it a little bit in your prepared remarks -- but just with you being part of the consortium, I guess, with an equity interest, can you maybe give an insight of how that's going to work from a cost and, I guess, your benefit or your revenue perspective as those projects go forward?

Yes. So, again, twofold -- first, we are very excited about the construction opportunities that those projects bring. As part of one of the consortium members, Energy Transfer is responsible for the construction and management of those contracts. So we will have a contract with Energy Transfer to procure and perform those services. We will be paid by Energy Transfer. And it's an arm's-length agreement between Energy Transfer and MasTec on the construction of those pipelines.

On a separate side, as an owner of the consortium and as a member of the ownership group of the consortium, we are going to have an interest in a 24-year -- and actually, the initial term is 24 years. We will actually own the header and the pipeline. There's a 24-year agreement for a payment stream for the full capacity of that pipeline. So we will enjoy the benefits of the ownership of that consortium. We don't own the majority of that consortium, obviously; so we will book that as a member of the consortium.

So two completely different ways to look at it. Right? One will be the construction activities associated with the job upfront, which will we paid for in its entirety. And then, two, we will make an investment in a consortium that will have a long-term asset, which, again, for us is something new. This is the first major equity investment that we make in a project where we will own something. We think the returns are phenomenal. And we are very, very excited to be a part of it.

No, that's great color. Thank you. And then I think somebody kind of asked this -- sticking on oil and gas, at least. But as far as the -- it sounded like you guys had a lot of good bookings fourth quarter and even so far this quarter. And we are hearing a lot of pipeline stuff going on. But could you just maybe talk about the regions you are seeing some activity, and even also just the types of work that you are seeing awarded -- just given all the turmoil that's kind of going on?

We are seeing broad-based activity, so we are seeing strong activity across the different shale basins. And we are seeing very strong activity on long-line construction that's planned. Again, a lot of the strength in the industry is in the United States.

The Canadian market is a little bit different. And obviously, the oilsands are being more negatively impacted than some of the other parts of Canada. But from a US perspective, very strong, very broad-based activity.

Adam Thalhimer with BB&T Capital Markets.

On the wireless side, Jose, I'm curious if there are any other drivers to offset AT&T. You've talked about Sprint in the past. And then is -- all the acquisitions that AT&T has made in Mexico -- is that an opportunity to do some upgrade work there?

So a couple of things -- one, we are very excited about the opportunities in the wireless market as a whole. Again, we think we've got a great relationship with AT&T. We've built a great business there. We support them. We think we are doing a great job for them.

But all along, part of our strategy has been -- is we need to diversify our customer base. We need to grow with other customers. It was really the driving force behind our WesTower acquisition.

And with that said, we are actually more bullish today, probably, than we made the acquisition of what that acquisition can do for us from a customer diversification perspective. I would expect that over the course of this year, you are going to see that materialize. And we are going to see a much more broad-based wireless business with multiple carriers going forward. And we are really, really excited about that.

As it relates to AT&T with some of their international expansion, obviously we are in Mexico today building wireless infrastructure for some of the existing Mexican carriers. So as -- we understand that AT&T is obviously going to go down there, and they will have their own investment to make. Again, we think we are uniquely positioned, because I think we are one of the few providers that they've ever worked with that's already there performing those services.

So we look forward to seeing what that means for us. So, yes, it's an opportunity. And we will see how that plays out.

Okay. And then I wanted to make sure I understood the 10-K delay. That's just an issue between where some of the costs -- sorry -- I guess, what, that impacts the COGS line, just between Q2 and Q3? There's no annual impact here?

So what we said is, unfortunately, we can only refer back to the statement that Marc read. But yes, we are saying that we do not expect it to affect full-year 2014 financial results.

Dan Mannes with Avondale.

A couple questions here: first, as it relates to Canada, obviously you have FX and kind of a challenging commodity price environment. Can you talk about the type of work that you are seeing slowing down there? And does this apply across oil and gas and also into electric? Or is this really kind of civil and midstream on the oil and gas side?

Obviously, we don't have a significant presence in Canada on the transmission side. We've got an office up there where we are obviously going after some opportunities, but we are not a large, established player there. So it probably wouldn't be correct for me to talk about that, because we are not as impacted in that business, because we are not in that business in a big way.

As it relates to the gas and oil side of business, the oilsand-related activity is being more impacted than anything else. But we are seeing some slight impact to the midstream market. As you think about some of the larger-diameter work, that work tends to be a little more stable, because those projects are in planning process for a lot longer. And by the time they decide to build them, they usually go forward with them, because they've got commitments and they've got significant costs already built into those projects.

With all that said, our customers, very early on in the process as prices were reducing, were very vocal with us that they weren't planning to change their plans. Subsequently, some of them started to make some CapEx reductions.

It's still a positive environment. There's actually -- there's still a lot of bidding going on in the market. But again, based on customers' total CapEx spend and a lot of the announcements that have been made, we've got a view of what we expect. And again, much more driven by the oilsands than anything else.

Got it. And then, real quick, just on the other side of the equation, any benefit to you from lower oil? Particularly as I think about install to the home and all the trucks you put on the road every day, I'm just wondering if there's any margin benefit you may see over some other parts of your business from the lower cost of oil and diesel?

We use a lot of fuel, so the answer is yes. We are obviously getting the same benefit that everybody else is getting on those prices. Fuel pricing is already beginning to tick up again. So we've seen a pretty decent shift here in the last couple weeks on average fuel prices across the country.

So, again, we've taken a pretty conservative view on our models. We haven't modeled in the lower prices that we saw very early in the year, because we don't really know where they are going to go. So to the extent that they continue to stay at those levels, then there will be a better benefit than if they continue to tick up, like they have been doing in the last couple weeks.

William Bremer with Maxim Group.

Good morning, Jose, George, and Marc. Nicely done.

Let's go right to Mexico. The first project, 143 miles -- what is the underlying diameter of that award? And then the second one -- I did hear it was 42 inches. How many miles was the second award?

So they are both 42-inch projects. The first project is 143 miles. The second project is 194 miles. So it's about 350 miles in total.

Excellent. And have they both been placed? Or are they going to be placed eventually into backlog? How should I look about that? And then more importantly, the underlying margins there -- and, potentially for George, the DSOs in that market -- what should we expect there?

I just want to make a couple of things clear again. Right? So when we talk about that market, so we will be working for Energy Transfer. These projects -- these particular projects happen to be in the US. So we will be getting paid like any other pipeline project.

There's going to be a lot of -- these projects will ultimately -- a big degree of these projects will be financed through project financing. So that's how a lot of our existing customers fund their work.

This is going to be no different. So we expect to be paid under the same terms and conditions that we are typically paid for in our project work. What was the second part of the question?

Will you be able to utilize your other tentacles in electric transmission and some power gen, as well, maybe encompassing some other components that may be needed as the buildout occurs down there?

So all of our -- obviously, there's no high-voltage transmission on this project. But there is a lot of -- we are building a header, and the header requires a lot of services that we also procure outside of pipeline construction that we also hope to be involved in. So the answer is yes.

Noelle Dilts with Stifel.

My first question relates to backlog. You obviously had some very strong, large project bookings in the quarter. I was a little bit surprised to see oil and gas was flat sequentially. Can you talk about if you have had to go back and maybe reevaluate your Canadian backlog -- was there a bit of offset there, just some these large project wins? And then, secondly, can you tell us either organic backlog growth or maybe just quantify that acquired WesTower backlog?

Sure. So from an oil and gas perspective, again, we were awarded about $500 million during the fourth quarter. I'd say a little bit of that work got performed and executed in the fourth quarter. We did -- roughly, the balance of that was almost one-to-one bookings in the fourth quarter. A lot of the things that we've talked about, like, were not in the -- the question that I didn't ask that Bill asked was when would this be put in backlog. So a lot of the stuff we've talked about was not yet in backlog as of December 31.

Two, these projects in Mexico that we've talked about -- one of the projects has now been signed. We do expect to get the second one signed before the end of this quarter. But those are the products with CFE. Again, we will be having a construction contract with Energy Transfer. So depending on the timing of when we actually execute those contracts, it will or will not be in backlog in Q1. For all intents and purposes in our minds, it's in backlog. Whether we actually include it in our backlog in Q1 or not, we will see over the next month.

And yes, the backlogs associated with our Canadian businesses were changed to affect both the Canadian exchange rate issues and any project deferrals or cancellations that there were. So we did re-look at that, and that has an adjusted at our year-end backlog. So year-end backlog should calculate and work out to what it is today.

As we talk about some of our communications backlog, we did add in WesTower backlog into our backlog calculation. At the same time, we did take a significant reduction to overall wireless backlog just based on what we knew today. And again, we are hoping that that gets better over time.

Okay. And then just digging into the softness you are seeing in Canada a little bit, is it more the kind of work you are doing with Pacer, where it's more projects, capital construction projects? Or is it also in the Big Country operation in more of the midstream business?

Well, the truth is we are seeing it in both. From a pure percentage-based business, maybe we are seeing it a little bit more in Pacer. But we are definitely seeing it in both.

Vishal Shah with Deutsche Bank.

This is Jerimiah on the line for Vishal. So just wanted to ask about the future Mexican opportunity. You mentioned a couple other projects that are going to be bid out soon. So what's the timeline that you are looking at for those? And when could you actually see a construction timeline ahead of you?

So again, just to reiterate what I said, there's about another dozen projects that they've announced that will be bidding over the course of the next year. Obviously, if they bid those and we win, there's -- you don't start those projects right away from a CFE perspective, because these are pure design, construct, and operate contracts.

There's a whole other segment to the Mexico market which is a lot more like what we do in the US, which is direct towards from, for example, like the Pemex. We really didn't cover that today. We are also actively engaged around that, and we are hope full that we are going to win some stuff there, too. But we didn't cover that. In our minds, we expect further awards in 2015. And we expect that market to be very robust for us going into 2016 and beyond.

Okay. And then, also, on a different note here, when we saw this two-week extension to the Wind PTC at the end of last year, we heard some potential, I guess, future eligibility for Wind PTC. Is that influencing your business directly? Or do you see more of an uptick than you might have expected this year because of that?

We were always expecting a really good 2015. I think if we are surprised, we are probably surprised at the strength of what we are now seeing for 2016. We think 2016 is going to be a better year, partly due to that small extension, because some are using that to push construction activities into 2016.

Allie Hemmings with D.A. Davidson.

Veny Aleksandrov with FIG Partners.

My question is on the margin side. You've had a couple of great years, kept acquiring company, growing organically, and EBITDA margins had improved. And now, because the business went away when you ramped up production, the margins are getting hurt. So what can you do? And I know it's a very tough process, but how can we go back to double-digit-plus EBITDA margins?

So, look, for us it's all about execution. We're not making excuses, but obviously the change in the market demand for our services and the rapid changes that we've had to face in the business over the last year in a couple of our markets have really negatively dragged our margins. We have got to do a better job at that. We've got to execute better. We've got to understand and model our business better and rightsize quicker.

I think we are doing that. And I think you will see the fruits of our labor over the next year. And I think going into 2016, where we are actually expecting some very solid growth across a number of our different segments, I think we're going to get to -- we are hoping to get to levels that we haven't previously seen.

Perfect. And my second question -- the $15 million integration costs that you talked about in addition for the first half of 2015 is not in the guidance. Right?

The integration costs are shown as a Reg G adjustment in our guidance, Veny. So when you look at them as an adjusted basis, we have not included those costs, just like we did in the fourth quarter. And we said they were $5 million in the fourth quarter of 2014. We expect about $15 million, thereabouts, in 2015, and expect that to be principally done by the third quarter.

At this time I would like to turn the call back over to Jose for additional or closing remarks.

Again, I just want to thank everybody for participating today. We weren't necessarily happy with the year that we had. We are looking forward to moving on and look forward to updating everybody on our first-quarter call. So thank you for participating.

That concludes today's Q4 and 2015 year-end call. Once again, we want to thank all of you. You may now disconnect.