MasTec Inc (MTZ) 2016 Q1 法說會逐字稿

Welcome to MasTec's first quarter 2016 earnings conference call, initially broadcast on May 6, 2016. I'd like to remind all the 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, please go ahead.

Thanks, David. Good morning, everyone. Welcome to MasTec's first quarter 2016 first quarter conference call. The following statement is made pursuant to the Safe Harbor for forward-looking statements in the Private Securities Litigation Reform Act of 1995. In these communications, we may make certain statements that are forward-looking statements, such as statements regarding MasTec's future results, plans, and anticipated trends in the industries where we operate.

These forward-looking statements reflect the Company's expectations on the day of the initial broadcast of this 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 releases and filings with the SEC. Should one or more of these risks or uncertainties materialize, or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in these communications.

In today's remarks by management, we will be discussing 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 measure not reconciled in these comments to the most comparable GAAP measure can be found in our earnings press release or on the Investor Relations section of our website located at MasTec.com.

With us today we have Jose Mas, our Chief Executive Officer; and George Pita, our EVP and Chief Financial Officer. The format of the call will be opening remarks and announcements by Jose, followed by a financial review from George. These discussions will be followed by a Q&A period, and we expect the call to last about 60 minutes. I'll now turn the call over to Jose. Jose?

Thanks, Marc. Good morning, and welcome to MasTec's 2016 first-quarter call. Today I will be reviewing our first-quarter results, as well as providing my outlook for the markets we serve. Before getting started, I would like to make some general comments around where the Company stands today.

We are currently on the cusp of seeing what we believe will be a dramatic improvement in our business. These expected improvements will be led by a significant ramp in long-term sustainable revenue in a number of our segments. The increased volume, with the corresponding improvement in utilization, should significantly improve our financial results over the coming quarters. While we're bullish on our long-term outlook, we are cognizant that we continue to have challenges in areas where we need to improve.

While our first-quarter financials were generally in line with expectations, quite frankly they should have been a lot better. We experienced considerable weakness in two areas of our business. Our Canadian business under-performed relative to our expectations, and that was primarily driven by one project where we incurred significant losses due to early break-up that required us to double resources to meet schedule commitments to our customers.

We also continued to under-perform in our electrical transmission business. While as we were expecting, areas of the business showed improvement, we had continued significant fade on one project. We missed our productivity expectations, causing a large increase to future anticipated costs. Our main priority today in our electric transmission business is completing this project, which is approximately 85% complete, and completing it within our most current financial estimates.

While we're frustrated with our current performance, we are confident that we have taken the appropriate action, and we expect to see improved performance in these two areas of our business. We provide this level of detail not to make excuses, but rather to provide a clearer picture of where the Company currently stands.

We have a long, proven track record of performing well in the markets we serve. We have excellent customer relationships, and a solid reputation in all of our markets.

What we have seen over the course of the last two years is that in difficult markets like the ones we've experienced in Canada and transmission, execution, project risk assumptions, and unforeseen circumstances on jobs can have a dramatic financial impact. For example, customers are more difficult when it comes to pricing and contract terms, and we have less leverage to negotiate.

I say all this to point out that we will be taking a more cautious stance to help limit our exposure in difficult markets. We will continue to have a presence in these markets, and will grow the business as conditions improve, and limit our exposure while the market is weak.

Aside from those areas of weakness, the business performed very well in the first quarter. We experienced strong, year-over-year growth in our communications business, a trend which we expect to accelerate. If you backed out our results in Canada, our oil and gas segment enjoyed 35% year-over-year revenue growth, and EBITDA margins in the mid-teens.

We highlight these two areas because these businesses are where we expect the majority of our revenue growth in 2016. We anticipated a very slow start to 2016, with a significant ramp as the year progresses. Our visibility into that ramp continues to improve, along with our longer-term outlook into 2017.

Now I would like to cover some industry specifics. Our communications revenue for the quarter was $512 million, versus $470 million last year. The increase in revenue was driven by strong increases in our wireline and installation businesses, and as expected, a decrease in our wireless business on a year-over-year basis.

In our install-to-the-home market, revenues were up 25% year over year. Demand for our installation services is strong. We have seen increased demand related to the DirecTV/AT&T merger, and have continued to grow and diversify our business.

We are beginning to see the fruits of how we have leveraged what we believe to be the largest third-party independent fulfillment Company in the United States, with broad geographic coverage. We are now working with four additional customers on pilot programs that could build into solid long-term opportunities. There is strong demand for a customer-touching work force to help differentiate product offerings, and we believe we are well positioned to fill this demand in the marketplace.

Wireline revenues for the quarter were up 31% year over year, and we continue to see strong demand in everything from electric distribution to fiber roll-out and expansion. Gigabit revenues and opportunities continue to expand. We continue to ramp in the 11 states in which we have now secured gigabit contracts, and we expect continued growth.

Our wireless business, as expected, was down year over year. Last year's first quarter was our highest revenue quarter for the year. This year, we expect the first quarter to be the lowest in 2016, more reflective of our historical trends. Our revenue visibility is strong, and we expect double-digit full-year growth in our wireless business compared to 2015. We are bullish on the long-term opportunities the wireless market affords us. Data usage and demand is expected to continue to grow at exponential levels, requiring our customers to increase their networks' capacities.

We're also encouraged about carriers' initiatives to bring wireless broadband to rural America. This includes technologies such as wireless local loop, which should have a very positive impact on our business.

We are also seeing the first investments in 5G technology. While very early in the cycle, there is no question that wireless carriers understand the need and importance for increasing data speeds. With the significant investment and advancements being made in wireline Internet speeds, it is only a matter of time before customers demand and carriers replicate those speeds in the wireless environment.

Moving to our power generation and industrial segment, revenue was $81 million for the first quarter, versus $84 million in the prior year. We are off to a good start, and we look forward to building on what was a much-improved year in 2015. There are a significant number of opportunities for 2016 and beyond, and we are well-positioned to benefit from the growing market.

Revenue in our electrical transmission business was $86 million, versus $116 million in last year's first quarter. We continue to under-perform in this business relative to our expectations. We were expecting improvements over fourth-quarter earnings, but as I mentioned earlier, we experienced significant continued fade on one large project. Our primary focus today is on getting this business back to a profitable level.

We have taken significant steps at right-sizing this business, and as announced on our previous call, during the quarter we were awarded a 70-mile, 765 kilovolt project. Construction began on that project in the second quarter, and we expect this to have a positive effect on this segment's earning potential for the balance of the year.

We are seeing an increasing number of opportunities in the market, but competition remains strong. We expect the industry fundamentals to improve through the balance of the year, as demand begins to eat away at current industry capacity.

Our oil and gas pipeline segment had revenues of $293 million for the quarter, compared to revenues of $327 million in last year's first quarter. We experienced a significant slowdown in our Canadian business, seeing revenues go from about $166 million in last year's first quarter to $75 million in this year's first quarter.

With the exception of the one project I spoke about earlier, which is now substantially complete, our Canadian EBITDA would have been slightly positive despite the significant decline in revenues. While we don't expect a significant improvement in revenues in Canada over the coming quarters, we expect them to be EBITDA positive for the balance of the year.

Excluding Canadian results, our oil and gas business experienced revenue growth of 35%, and EBITDA margins in the mid-teens. We expect oil and gas revenues to dramatically ramp over the coming quarters, and our current guidance assumes no further project awards in 2016.

We have now started construction on the Waha projects, and we're happy to announce that yesterday afternoon we received a presidential permit for the Trans-Pecos Pipeline. We always expect to start our work on the Dakota Access pipeline this quarter. These are both important catalysts for our business. We continue to focus on Mexico as a growth market, and we're pursuing a number of opportunities.

Oil and gas backlog was slightly down sequentially, due to timing of contract signings. Virtually all of our current backlog in this segment will be completed in 2016, and we expect backlog at year end to exceed current levels.

I continue to be surprised by the level of visibility in this segment for years to come. We are in great shape relative to backlog in 2016. We believe 2017 is going to be even better, based on verbal commitments and awards. We are in negotiations and dialogue on projects that will be built all the way out into 2019 and 2020.

This level of activity is offsetting the weakness in the shales due to commodity prices and giving contractors ample time, years, for commodity prices to rebound. It's important to note that we expect many contractors that don't have exposure to these large jobs to struggle over the next couple of years, creating further opportunities as commodity prices rebound and shale activity starts to ramp.

To recap, we had an in-line first quarter that could have and should have been better. Our communications segment is growing, and we have solid opportunities related to home installations, gigabit expansion, and wireless services. We are in the midst of a significant ramp in oil and gas activities, and are confident that growth will be long-lived. Our power generation and renewable business should have a good year, building on significant improvement in 2015. Finally, we are hopeful that we will soon see a dramatic improvement in our electrical transmission business, and get that business back to historical levels.

I would also like to take this opportunity to thank the men and women of MasTec for their commitment to safety, their hard work, and their sacrifices. Our people are our most important asset, and it's because of them and the opportunities that they've created that I'm so bullish about our future. I'll now turn the call over to George for our financial review. George?

Thanks Jose, and good morning, everyone. Today I'm going to cover first-quarter 2016 financial results, including cash flow, liquidity, and capital structure, as well as our second-quarter and full-year 2016 guidance range views.

As Marc indicated, discussion of our financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA. Reconciliations of all non-GAAP measures can be found in our press release, on our website, or in our SEC filings.

Consistent with our prior call, when addressing our first-quarter 2016 performance, first-quarter 2016 adjusted results exclude the impact of approximately $4 million, or $2.4 million net of tax, in restructuring costs related to our western Canadian oil and gas and electrical transmission operations. These costs comprised employee separation costs, lease terminations, and other restructuring costs as we reduced the overhead expense structure in these operations. We expect to incur somewhere in the range of $1 million to $2 million in additional restructuring costs in the second quarter, as part of expected completion of these activities.

Here are some highlights regarding first-quarter 2016 performance. First-quarter 2016 revenue was $974 million, which in total was slightly above our expectations. We exceeded our revenue expectations in the communications segment, and under-performed in the electrical transmission segment. Communications segment revenue and adjusted EBITDA exceeded expectations, primarily due to increased revenue levels, while electrical transmission segment revenue and adjusted EBITDA under-performed, due to the impact of a $15 million negative project margin on a large transmission project.

First-quarter adjusted EBITDA was approximately $54 million, in line with our guidance range of $50 million to $55 million, despite the shortfall in electrical transmission segment results, primarily due to better-than-expected adjusted EBITDA performance in our communications segment.

First-quarter 2016 adjusted diluted earnings were $0.02 per share, above the guidance range of break-even to a loss of $0.03 per share. This improvement was primarily due to lower-than-anticipated levels of depreciation and amortization expense, as well as slightly lower levels of interest expense.

We ended the first quarter of 2016 with no change in overall debt levels, which remained flat at about $1 billion. Cash flow from operations was approximately $16 million, which was generally in line with our expectations, and reasonable given $54 million in adjusted EBITDA during the quarter, with our first-quarter 2016 working capital metrics in good shape.

Keep in mind that a comparison of first-quarter 2016 versus 2015 cash flow from operations is an apples-versus-orange type comparison, because first-quarter 2015 cash-flow performance disproportionately benefited from a working capital reduction related to a large sequential revenue reduction from fourth-quarter 2014 levels, while first-quarter 2016 revenue approximated the previous quarter's level.

We continue to expect that our full-year 2016 operations will generate excess cash through either debt reduction, share repurchases, or M&A activity; and expect that much-improved 2016 earnings levels, coupled with similar levels of 2016 year-end debt, will generate significant year-over-year improvement in our 2016 year end leverage metrics. This improvement is forecasted despite increased levels of working capital investment expected with our forecasted 2016 revenue growth.

It should also be noted that in an effort to provide better clarity, we have added a new line item to the income statement in our first-quarter filing called Equity and Earnings of Unconsolidated Affiliates, and reclassified 2015 prior-year amounts, which were previously reported within the other income/expense line item. This line represents the impact of our equity investments and the ownership of the two Waha pipeline joint ventures currently under construction, as well as Pacer acquisition, western Canadian joint ventures in the process of liquidation.

Lastly, during the fourth quarter of 2015, we indicated that we recorded approximately $4 million in charges in our income statement to reflect unrealized fair-market-value charges related to interest rate swap agreements entered into by our Waha joint ventures to prudently fix the rate of project financing. During the first quarter of 2016, the joint ventures determined that these transactions qualify as effective hedges under GAAP, and thus, during the first quarter of 2016, and on a go-forward basis thereafter, the impact of any unrealized fair-market-value gains and losses on these swaps are expected to flow through our balance sheet in the Accumulated Other Comprehensive Loss line item, rather than impacting our income statement.

Now let me get into some more detail regarding our first-quarter results. As I mentioned earlier, first-quarter 2016 adjusted diluted earnings results were above our guidance range, at $0.02 per diluted share, versus our guidance range of break-even to a loss of $0.03 per diluted share. Adjusted EBITDA was $54 million, compared to our guidance range of $50 million to $55 million. First-quarter 2016 revenue was $974 million, a decrease of approximately $29 million, or 3% compared to the same period last year.

Communications segment revenue increased approximately $42 million, or 9% compared to the same period last year. This increase was offset by a $34 million decline in the oil and gas segment, and a $30 million decline in the electrical transmission segment. Communications segment revenue increased approximately 9% to $512 million, compared to $470 million for the same period last year. Communications segment adjusted EBITDA margin was 12.1%, compared to 10.2% during the fourth quarter of 2015.

During the first quarter of 2016, we recorded other income of approximately $10 million, related to a cash settlement received during the quarter in connection with a previously acquired business. While we are bound by a non-disclosure agreement, we can say that the settlement involved a dispute primarily related to the realization of project receivables and work in process, upon which we spent a significant amount of operational division time, effort, and cost in attempts to monetize these assets. After extended unsuccessful operational efforts, we then incurred considerable amounts of legal, professional, and other expenses in connection with obtaining this cash settlement.

All that said, even if the impact of this settlement is excluded, first quarter 2016 communications segment adjusted EBITDA margins were at double-digit levels, or 10.2% of revenue, which approximates our fourth quarter 2015 level. While this level was above our initial first quarter 2016 expectations, it is below our expectations for the balance of 2016, where we expect a further ramp-up of communications segment revenue, and thus better leverage utilization of existing overhead to support this expected growth.

As I indicated earlier, our first quarter 2016 electrical transmission segment results were negatively affected by the impact of a $15 million negative project margin on a large transmission project. The amount recorded during the first quarter primarily reflects unexpected geological conditions with impacted productivity during the first quarter, and required an increase to estimated levels of labor and materials required to complete the project.

This project is approximately 85% complete at the end of the first quarter. We believe amounts recorded have captured the necessary costs to complete this project, but our cost estimates are based on estimated geological conditions which can only be truly determined at the point of construction.

This project, which is now expected to result in an overall slight loss upon completion, has suffered approximately $30 million in negative project margins during the past two quarters, representing a major driver in the recent negative adjusted EBITDA trend in our electrical transmission segment. While this project has proven to be very difficult financially, we are on track to substantially complete construction on schedule in the fourth quarter of 2016.

As expected, first quarter 2016 oil and gas segment revenue declined approximately 10% to $293 million, compared to $327 million last year. This decrease was due to lower levels of gathering line and related facilities services in our western Canadian operations. In total, first quarter 2016 oil and gas segment adjusted EBITDA margin of 6.7% of revenue was slightly better than the 6.6% of revenue reported for the same period last year. This was despite lower year-over-year revenue levels.

First-quarter 2016 results were negatively impacted by our Canadian operations, both due to lower revenue levels based on the decline in oil prices, coupled with a $14 million project loss on a project which is 90% complete as of the first quarter of 2016.

Excluding the impact of Canadian operations, the balance of our oil and gas operations reported strong first quarter 2016 revenue growth and adjusted EBITDA performance. This bodes well for our future expectations of 2016 performance in the oil and gas segment, as the future impact of Canadian oil and gas operation weakness is expected to lessen over the balance of 2016, given the seasonality of Canadian operations, coupled with the expected ramp-up in US long-haul project activity over the remainder of 2016.

As indicated in yesterday's release and filing, we began initial construction during the first quarter of 2016 on the two large Waha projects. We expect a significant ramp-up of construction activity on these projects during the second quarter of 2016, which will continue for the balance of 2016. We also expect to commence construction late in the second quarter on the Dakota Access pipeline project. The combination of these projects is expected to create a significant increase in oil and gas segment operations through the remainder of 2016.

Our top 10 largest customers for first-quarter 2016 as a percentage of revenue were: AT&T revenue, derived from wireless and wireline services, was approximately 20%; and install-to-home satellite and security services were approximately 19%. On a combined basis, these four separate service offerings totaled approximately 39%.

Revenue from Energy Transfer affiliates was approximately 18%. This revenue pertains to several separate construction projects for Energy Transfer Partners and Sunoco Logistics.

Duke Energy was approximately 4%, while Exelon Corporation, an unnamed fiber customer, and Iberdrola Renewables were all at approximately 2%. Verizon, MidAmerican Energy, AGL Resources, and Enbridge were all at approximately 1% of revenue.

Individual construction projects comprised 50% of our first quarter 2016 revenue, with master service agreements comprising the remaining 50%. This mix is generally in line with recent trends.

As far as major customer trends are concerned, as highlighted by the percentage of revenue during our first quarter of 2016, we had good growth in our combined service offerings to AT&T in wireless, wireline fiber, installed-at-home satellite, and security services. It is important to note that all of these offerings, while falling under the AT&T corporate umbrella, are managed and budgeted independently within their organization, giving us diversification within that corporate universe.

In addition, while our expectation is that AT&T revenue growth levels during the balance of 2016 will increase further over reported first quarter 2016 levels, we also expect that our annual 2016 AT&T revenue concentration percentage will decline from the current first-quarter levels, due to the significance of the expected revenue expansion in our oil and gas operations during the balance of 2016.

It should also be noted that first-quarter 2016 revenue levels for Energy Transfer does not include any revenue in connection with the Dakota Access pipeline contract previously awarded to us, but rather represents revenue related to several projects approaching completion for various Energy Transfer affiliates. As we indicated in yesterday's release, we expect Dakota Access construction to initiate late in the second quarter of 2016, and significantly increase during the second half of 2016, driving significant revenue expansion.

At quarter end, our 18-month backlog was approximately $5.7 billion, compared to approximately $4.2 billion in the first quarter of 2015, and $5.7 billion at year end. This represents a 35% increase over the same period last year's levels, due to the impact of large, long-haul oil and gas pipeline contract awards that we achieved during the latter part of 2015. As we have previously indicated, the current levels of oil and gas backlog for 2016 are unprecedented, and we are in active discussions on various long-haul product awards that we believe will create significant backlog for 2017 and 2018.

Regarding other areas of the income statement below the EBITDA line, first quarter 2016 depreciation and amortization expense was slightly better than our initial expectation, at $39 million, or 4% of revenue, compared to 4.2% of revenue for the same period last year. Interest expense for the first quarter of 2016 was also slightly better than our initial expectation, and these items were the primary drivers of the improvement in our actual first quarter 2016 adjusted diluted earnings-per-share performance over our initial guidance.

Finally, first quarter 2016 adjusted diluted earnings were $0.02 per share, compared to $0.07 per share last year. GAAP diluted loss was $0.03 per share, compared to a loss of $0.08 per share last year.

Now I will cover cash flow, liquidity, and capital structure. As we have previously noted, our long-term capital structure is solid, with low interest rates and no significant near-term maturities, and we have an excellent and supportive bank group. We enter the second quarter with ample liquidity of $369 million, and ended the quarter with essentially no change in our overall debt levels from year end.

As I indicated earlier, despite expected increased levels of working capital investment during 2016, associated with forecasted significant revenue expansion, we continue to expect that our full-year 2016 operations will generate sufficient excess cash, either for debt reduction, share repurchases, or M&A activity; and expect that similar 2016 year-end debt levels, combined with anticipated improved 2016 earnings, will generate a significant improvement in our year-end 2016 leverage metrics when compared to 2015.

Our first quarter 2016 accounts receivable days outstanding, or DSOs, were 74 days, compared to 68 days at year end, and 88 days as of the first quarter of last year. This performance level is a 14-day improvement over last year, and in line with our previously indicated expectation range for DSOs, somewhere between the mid to high 70s.

Our first-quarter 2016 cash flow from operations was approximately $16 million, generally in line with our expectations, and reasonable given $54 million in adjusted EBITDA during the quarter. As I mentioned earlier, it is important to note that a comparison of first quarter 2016 versus first quarter 2015 cash flow from operations is an apples-versus-orange type comparison, as first quarter cash flow in 2015 disproportionately benefited from a working capital reduction related to a large sequential revenue reduction from fourth quarter 2014 levels, while first quarter 2016 revenue levels approximated our fourth quarter 2015 levels.

Specifically, a major driver of the strong cash flow from operations reported during last year's 2015 first quarter was the working capital benefit of approximately $230 million in sequentially decreased revenue levels. This year's first quarter cash flow from operations did not have this level of impact.

Regarding our spending on capital equipment, first quarter 2016 cash CapEx, net of disposals, was approximately $11 million. We anticipate 2016 cash CapEx levels net of disposals will approximate $70 million to $80 million, with an additional $70 million to $80 million in capital lease and equipment financing, for a total CapEx net of disposals of $140 million to $160 million.

Moving on to our 2016 full-year guidance, we are currently projecting annual revenue of approximately $4.8 billion to $5 billion, with adjusted EBITDA of approximately $415 million to $430 million, and adjusted diluted earnings per share of $1.37 to $1.47.

This guidance level increases overall 2016 revenue levels by approximately $200 million, with no change in adjusted EBITDA, and adjusted EBITDA margins approximating 8.6% of revenue. Current full-year 2016 adjusted diluted earnings-per-share guidance is approximately $0.02 per diluted share higher than our last estimate, largely on the assumption of lower levels of depreciation and amortization, partially offset by a slight increase in interest expense.

This guidance incorporates the impact of our first quarter 2016 results and performance trends, with increased 2016 revenue and adjusted EBITDA expectations in the communications and oil and gas segments, and reduced 2016 revenue and adjusted EBITDA expectations for the electrical transmission segment. Assuming that the large transmission project we discussed earlier is completed as currently estimated, we expect that electrical transmission segment adjusted EBITDA results for the balance of 2016 will improve, and approach a break-even adjusted EBITDA level, leaving the segment with an adjusted EBITDA loss for the 2016 year.

We expect 2016 annual interest levels will approximate $52 million, and expect 2016 annual depreciation and amortization to approximate 3.4% to 3.6% of revenue. We anticipate our 2016 annual income tax rate will approximate 42%.

Lastly, our estimate for full-year share count for diluted earnings per share is about 81.5 million shares, with 81.25 million shares for the second quarter. We expect to end fiscal 2016 with approximately 82 million shares outstanding.

Turning to second quarter 2016 guidance, as we indicated in our release yesterday, our guidance estimate for the second quarter of 2016 reflects a broader range than we normally provide, given the short-term challenges associated with estimating the timing impact of large, long-haul oil and gas project startup activities during the quarter. We continue to estimate that second quarter 2016 revenue will range between $1.1 billion and $1.25 billion, with adjusted EBITDA in the range of $80 million to $95 million, and adjusted diluted earnings per share in the range of $0.17 to $0.27 per share.

In summary, first-quarter results were slightly above our initial expectations, and we expect significant revenue and earnings improvement throughout the balance of 2016, as we begin executing on multiple large projects. We are also seeing increasing visibility with regard to growth opportunities for 2017 and beyond, and believe we are well positioned to take advantage of these opportunities.

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

(Operator Instructions) Alan Fleming, Citibank.

Hi guys, good morning.

Good morning, Alan.

Jose, you have been talking about transmission improving for several quarters. We know you have one large project ending soon, and it sounds like you're being a little bit more cautious here until the market improves.

Maybe talk a little bit more about what's been so challenging in getting this business back to profitability, even with the restructuring you have done. How do we get comfortable that you've got this business right-sized to where it needs to be? Do you need to do something more significant? Have you even thought about exiting this business all together?

Well look, I think George alluded to it in his comments. We've got, over the last two quarters, we've had one project that's faded by $30 million. I think that's been the largest driver of the issues that we've had in transmission. Obviously we went through all of the issues with our internal investigation. A lot of it had to do with that group last year. I think a lot of people's time, focus, and energy from their day-to-day business unfortunately was spent doing different things. We talked about the impact that was having in our business, and unfortunately we are still seeing the results of that.

I think we're doing a lot of the right things. We feel good about the projects that we're winning. We feel good about the opportunities that we're seeing, the level of opportunities that exist. But there's no question that we're tired of talking about it. We're tired of missing our numbers quarter after quarter.

We're fully cognizant of the fact that the level in which we've said we are going to improve over the last couple quarters we haven't executed on. That needs to stop, and we need to perform. There's really nothing else to say about it. It's time to perform in that business. We think we're getting there. If we don't perform, then obviously we need to look at what we do relative to that business to put ourself in the best position to succeed as a Company.

We've got great opportunities ahead across all of our segments. We're very comfortable with where our business is headed. We really don't have room to have anything drag us down, and we get that, and we understand that, and we're going to manage to that effectively.

Okay, I appreciate that.

Maybe just switch gears to communications. As wireless starts to ramp, and it seems like you have very good momentum in the install-to-the-home business. Maybe just talk a little bit about the potential of adjusted EBITDA margin here in communications going forward. You've done a lot of work over the last 12 to 18 months to take costs out of the wireless business.

How do we think about utilization versus maybe a year ago? Where do you think you could be a few months from now as wireless ramps?

Look, we're getting more bullish. We had a good quarter in Q1. I think as we think about it the full year now, we're expecting EBITDA margins to be higher than we did at this time in our last call. Internally, we're seeing an improvement in those margins. We expect that margin -- that improvement to stick for the balance of the year.

We're expecting nice margins, a nice up-tick from 2015. That's a positive sign.

We're very encouraged about the levels of activity that we're seeing across all of our businesses in communication, whether it's wireless, whether it's installation opportunity, whether it's further wireline growth. It's a solid industry right now.

A lot of good things are happening. We're pretty excited about it, and I really think we're starting to perform and execute at a very solid level there.

Alex Rygiel, FBR Capital Markets.

Thanks. Good morning, Jose and team.

Good morning, Alex.

The first question, your first-quarter results. Clearly, if we were to back out those two problem projects, your core results out-performed your internal expectations, which is great.

How come your full-year guidance didn't get raised? Because I would have thought that with that out-performance of the core business in the first quarter, if you rolled that forward in 2Q and beyond, that possibly could have caused you to raise your full-year numbers. Are you just being conservative here?

A couple things, right? I think one, when you look at our transmission business what we've been saying over the course of the last few quarters is we expected 2016 to be slightly profitable, mid-single digits. If you think about a $15 million positive transmission EBITDA year; now we show up with a $23 million EBITDA loss in Q1, that by itself is a $38 million swing. In essence, by being able to absorb that swing in theory we are increasing our overall numbers. That $38 million's got to come from somewhere else, and we think we're delivering that to really stay flat.

With that said, when we look at guidance, especially in the oil and gas market, all of our revenue expectations for the year are already in backlog. We've made I think conservative assumptions relative to how much of that backlog we're going to be able to fully execute in 2016.

If things go our way, we absolutely have hopefully some room, and we'll be out-performing our numbers, which has been our expectation, and where we wanted to get back to for a long time. But we still have -- the proof's in the pudding, and we know that. We've got to start delivering. As we do, I think you're going to see an improvement in numbers, and hopefully in a place where we can start seeing up-ticks rather than either holding flat or being the other way.

Then as it relates to the oil and gas business, obviously you've got a lot going on this year, a lot of new projects starting in the short term. A lot of bids for a lot of the large product work over the coming year.

As it relates to the second quarter, Waha and Dakota, are they incrementally helping the profitability and the margin in Q2, or will we not see that benefit until 3Q? When will each one of those projects be completed? Then as it relates to all these additional awards, are any of them included in Mexico?

Obviously Waha and DAPL will both have a positive effect on Q2. The extent of that effect will really depend on how quickly we can ramp, especially on the DAPL project, which is a later-starting project in the quarter. No question that they will both have a much more dramatic impact to the third quarter than they do to the second quarter, and I think we'll see some of that trend continue into Q4.

What we said on today's call is when you look at our backlog number for oil and gas, we expect almost all of that to burn off in 2016. I think that gives an indication of when we plan to complete those projects.

The other thing we said was we expect to end the year with higher backlog levels than we currently have, which I think is a testament to how solid we feel about the prospects, and where we stand relative to those prospects and what we know.

Currently in saying that, Mexico plays a role, but I think we're going to see. It's been a long sales cycle, longer than probably we would have expected or hoped. But we're chasing a lot of opportunities down there. They're very large projects, very good projects.

We're confident we're going to win our share. When we do, I think it's going to have a further dramatic impact to the numbers that we're talking about. Again, I think it all adds to why we're so bullish in the level of excitement that we have around that business for a long, long time.

Very helpful, good luck.

Thank you, Alex.

Matt Duncan, Stephens.

Hi. Good morning, guys.

Morning, Matt.

Jose, I was hoping we could start by talking a little bit more about the increased optimism in communications. You talked about this some in your prepared remarks.

But can you maybe tell us where -- versus wireline, wireless, and installation services, where among those three are you more positive? Is it all three of them, or is there one in particular that's really picking up for you?

Look, our installation business was up 25% in the first quarter. Our wireline business was up 31% in the first quarter. We're saying we expect our wireless business to be up double digits on a full-year basis.

Across the board, we're seeing excellent results. We're seeing great opportunities. Obviously, especially from where we are from a total revenue perspective, we may have bigger opportunities from a growth perspective in installation and in wireline than we do in wireless.

But they're all healthy markets.

Wireless is improving. Visibility in wireless is improving. I think longer-term outlook in wireless is improving with the advent of 5G, which we're really not going to see in 2016. That's going to be a 2017 and beyond, which I think is going to be great for the industry.

I think wireless local loop gets started in 2016, but the reality is the big impact and the positive impact of that is going to be in future years. I think we've seen a lot of carriers, some in particular that have delayed some of their strategies. I think we're going to see a nice up-tick as the years come.

A lot's written about wireline. Everybody's following that. Everybody's tracking it, great opportunities there.

I think the strength of our installation business has quite frankly somewhat surprised us. We're seeing a lot of opportunities related to that, both within our existing customer base and others. Again, it's almost across the board. It's performing very well right now.

Okay. It's safe to say then that segment's probably a double-digit grower this year, it sounds like, given the growth rate you're seeing in each of the three pieces?

Yes.

Okay. Then the other thing I had is on the DAPL project. Can you give us some idea where in this quarter you expect to actually begin construction? I think it had been some time in May, last I checked. I just don't know what the current expectation is there. I know the contractor that's building the storage for that job has already begun construction on that piece.

Is the completion date for that job still by year end? It sounds like it must be, if you're going to work off most of the oil and gas backlog that you've got there.

What we tried to do with guidance was give ourselves room. We've have been through this before, where you're starting a project. You expect to be on it, you get delayed a week or two. We really tried to take a very hard and conservative view on that.

Our expectations haven't changed. We expect to start this month. We expect to be substantially complete by year end. We're tracking towards that, but we're buying ourselves a little bit of room in case something unforeseen happens.

Okay, thanks. I will hop back in queue.

Thanks.

Noelle Dilts, Stifel.

(technical difficulty) after this very strong growth you saw in installed-to-the home. Can you help us understand if that's coming from new geographic territories, or more work in your existing territories?

Then on their conference call, AT&T did talk about accelerating single-truck rolls in the back half of the year. But given the growth that you're seeing, is there a way to think of this as a benefit? Are you actually seeing a benefit from that? Can you just help us understand what you're seeing?

Sure. What we've said all along is we think AT&T is doing a good job with DirecTV. They have big plans, obviously, to grow their customer base and expand their product offering. I think we're seeing a benefit to that.

I think if they continue and they reach their goals, they're going to need a lot more technicians to be able to do what they want to do. We're going to play a role in that. We're not going to be the only ones that play a role in that, obviously in their existing footprint.

But we feel good about where we're at. We feel good about the level of work that we're going to enjoy. We really don't expect much of a difference through the balance of the year.

Like we've said in the past, we don't really expect that to affect us. I know we keep getting asked the question, but I think we're demonstrating that it hasn't affected us, and I think we feel good about it not really impacting our business in any significant way in the second half of the year or beyond.

Okay.

Then on the problem transmission job, I know you're 85% done, but can you give us a sense of just how much remaining revenue is coming for the rest of the year, just so we know how much is moving through the income statement at break-even?

Hi, Noelle, it's George. It's about -- for the balance of the year, it's about somewhere in the neighborhood of $40 million to $50 million that's remaining.

Okay, thanks.

John Rogers, D.A. Davidson.

Hi, good morning. Can you hear me?

(technical difficulty) Capital Markets. Just one moment. Go ahead, Matt Tucker.

Sorry about that, I was getting some static on my line.

I first wanted to ask about the AT&T DirecTV merger. I think there has been some concern that would cannibalize some of your work. But for prepared commentary, you said you're actually seeing increased demand stemming from that. Could you just provide a little bit more color on how you see that affecting your business and your outlook?

Sure. Again, we're very excited about the opportunities with DirecTV and AT&T. We think AT&T's doing a good job relative to the sales side of DirecTV. We think they've got big plans. To the extent that they perform at their expectations, we think there's going to be plenty of work for everybody. I think we've demonstrated that in our results.

As we've said, we don't really expect that to impact our business in any negative way for either the remainder of the year or beyond.

Great. Then I wanted to ask about Dakota Access again. I'm sorry to beat a dead horse. You mentioned it as -- the start-up timing is a variable within your second-quarter guidance range. As Matt mentioned, we know that parts of it are under construction.

What is causing the uncertainty at this point, in terms of when your work starts up? Are there permits that are still needed? If you could just comment on that, please.

I'd like to refer back to Energy Transfer's call. They had their earnings call yesterday, and they talked about receiving the four required critical permits on that job. Again, there's really -- we have a very clear indication of when we expect to start.

Again, we are being cautious. We've lived this before. We don't want to give a date, and then something happens, and it's a week or two -- gets delayed for whatever reason you can imagine, and it has a dramatic effect on our financial impact. So we tried to build in some cushion.

We expect to start this month. We're on track to start this month. We're mobilizing to start this month. But again, we're being cautious around being very specific around when and how much, because it may or it may not change.

Great. Thanks, Jose.

Thank you.

Jason Wangler, Wunderlich.

Hi, good morning, Jose.

Good morning, Jason.

Was just curious, you mentioned in your prepared comments about a couple more customers in the install-to-home type businesses. I was curious if you could maybe even give us some indications of what kind of products or services you would be providing.

Obviously, the Sprint stuff sounds interesting. Obviously that's been going well. But just an idea of what those markets look like as you start to get into them.

I think the important part of the commentary is the fact that customers across the country are really starting to realize, and I think recognize us as having a leading third-party -- as being the leading third-party fulfillment company.

Again, I think a lot of people are trying to differentiate their products through customer-touching experiences, which I think is important. I think it's what we can fill in the market. We don't really want to get into specifics, because I think a lot of the things are fairly new and innovative. I think we'll be ready to talk about them as we deploy them in larger scale.

Over the course of the next couple conference calls, really hope to share a lot more on that, but we're not ready to do so today.

Okay, that's fair. This one may be a little bit early, too, but obviously with the work in Texas and the Waha starting up, how are you seeing the Mexico market develop actually in-country? Are you seeing anything going on there, or just your take on what's been happening the last few months there?

Look, it's a fantastic market. It's going to be incredible. We've been working there. We've been there for a long time now. We're chasing a lot of opportunities.

Obviously the market's been disrupted with commodity prices. I think we're going to -- we've seen a shift in how work's going to get done there.

But again, we have been a very active participant, and I think it's going to bode well for us. I think we're getting really close, and we're hoping in the near future it's going to have a significant positive impact to our business.

I'll turn it back. Thank you very much.

Thanks.

Justin Hauke, Robert W Baird.

Hi, thanks guys. I just wanted to ask a question about the oil and gas margins, and how to think about them in the second half. Really, the reason why is with the change from the Waha business, and that flowing through as equity income, I think that just flows through as income to your EBITDA in that segment. The mid-teens that you put up this quarter, ex the charges, that would be one of your best margin quarters.

I'm trying to think about the second half as that Waha stuff comes in, you get more of that income, plus you get the utilization. Are we thinking EBITDA margins could be closer to 20%?

A couple things. First, we're going to continue to have a Canadian business that's going to be a drag on overall EBITDA margins, and we understand that and accept that. We're -- again, longer term we're very bullish on the Canadian market and what it means for our Company, and the opportunities that are going to present themselves there. There is no question that, as these larger jobs start and utilization levels pick up, that the opportunity for margin expansion continues.

I didn't really follow you relative to Waha equity and things like that. The actual equity that we have on the project, there's really no flow-through on financials there. That project actually won't start generating revenues until it's complete and it's collecting dollars. It's not affecting segment EBITDA, so that doesn't play a role in it whatsoever.

It's strictly on the work that we'll be doing. Obviously the construction work that we do for Waha will flow through our oil and gas business.

I think the first quarter was a great trend relative to how our business is performing. I think in spite of it being somewhat of a difficult market in some parts of the country, we performed really well. I think that we expect our performance levels to continue. Obviously we're going to have a mix with Canada. I don't know that we're targeting 20% EBITDA margins, but we are encouraged by where we're at.

We do think the opportunity to improve is there. I think it is an area where, if we perform at the levels that we think, it should have a positive impact to our earnings, and hopefully be a driver of an opportunity for us to significantly beat our numbers, because we're obviously not targeting those kind of margins, and that's not what's embedded in our guidance.

Again, the construction activity for the Waha projects that we're doing is within the oil and gas segment. The operations of the oil and gas segment are not impacted by any earnings related to the joint venture, which is in a separate line.

As Jose mentioned, we have a lot of work to execute in the second half. Right now we're looking at the second half of the year and the balance of this year conservatively until we get started and we get flowing on that work.

There is certainly opportunity, as we all know in long-haul work to report better margins. But right now we're not forecasting that until we get further along and get on the ground and start seeing conditions and how much productivity we can get.

Okay, that makes sense. Yes; I guess the key thing is that the work you actually do on the Waha work, that flows through as normal segment income.

Yes.

Okay. My second question is just moving back to telecom. I wanted to ask about Sprint. I know that they were a customer for WesTower, and you've got some opportunities there to expand. They've been cutting their capital budget, as well. I'm just curious, is that impacting you, or are where they're cutting their budget not really the programs that you're exposed to? Thanks.

Sure. Again, we expect our wireless business to be up on a year-over-year basis. We've talked about Sprint a lot over the course of the last year. We continue to believe that it presents a great opportunity for our Company. We have a very good relationship with them, and they've talked a lot about their network plans. Their network plans have not been as aggressive as I think we had initially expected.

On their last call they talked about all of the network things that they plan to do over the course of the next couple years. They talked about beginning to receive a number of permits on a lot of the initiatives that they're starting, which is a great sign.

But obviously, Sprint, which we expected to be a larger driver of wireless growth over the course of the last year has been slower to start. We don't have a huge anticipation for what they might or might not do from now to the end of 2016, but just based on their commentary and the permits that they're receiving and the plans that they have, I do think it's going to be a potential very positive driver of growth in 2017 and beyond.

Dan Mannes, Avondale Partners.

Thanks, good morning, everyone.

Good morning, Dan.

First of all, quick follow-up on the communications side. Margins ex the settlement, about 10%. Given the higher -- the growth in DirecTV, which I've assumed was a higher-margin piece, should we anticipate maybe some more benefit there, or is there maybe some offset as you're doing these demos from the cost side? Basically more broadly, how should we think about that as the mix is changing, and we're seeing maybe more of the install business?

Look, again, we're pretty excited with our performance in the first quarter. We're expecting a margin up-tick in that business relative to last year. There's no question that on a full-year basis, we now have a more optimistic view in our communications business than we had going into the year.

We expect nice year-over-year improvement that I think is driven by the whole of the business. Obviously, that's inclusive of what's happening in installations, but it's also inclusive of what's happening in wireline and in wireless.

No question to your last comment. We are investing in that business, both from a wireline perspective and an installation perspective. We've got a lot of growth markets there, a lot of areas where we're adding resources. There is some drag that comes with that, but I think over time it more than pays for itself. I think that's all inclusive in the margin profile that we're talking about for the year.

Makes sense.

Then secondly, on the electric side, just listening to your initial comments, given some of the end-market challenges and some of the execution issues, should we think about you guys managing this maybe as a smaller business in the near term, or are you still having challenges with overhead absorption? I just want to make sure I understand your plan here. Is it to try to grow it back and cover overhead, or is it maybe to shrink it down and make it a little more manageable?

It's a good question. I think what we're talking about today is saying we're not going to chase revenue for the sake of chasing revenue and just trying to cover costs. I think we're going to right-size the business to the size of where we think we can be most effective. Obviously that depends on market conditions, and the market is evolving. The market is getting better. So I think we're going to reevaluate that on a go-forward basis.

Today our goal is to manage the business at the best size in which we think we can execute. It probably means shrinking the business, or running at a lower level than we historically had, right-sizing it, making it profitable, and then really taking advantage of the opportunities as the market improves.

That makes sense, thanks.

Thanks, Dan.

William Bremer, Maxim Group.

Good morning, gentlemen.

Morning, Bill.

Could we first go into pricing of what you're seeing primarily in the oil and gas segment, what is coming in the door now versus say six months ago? How's the pricing there?

Again, it's a big industry with lots of sub-sections, right? We've got -- you can't generalize. Obviously Canada is very different than what we're experiencing on long-haul.

The long-haul market's great. It's been really good for a long time. Obviously there's an enormous amount of demand for services, so we don't expect that to change.

When you look at some of the tighter markets like Canada, and maybe even some of the smaller gathering stuff, those are much tougher businesses, because people are really trying to keep their people busy, and probably bidding things lower than they should be.

We're lucky to be in a position today where we don't have to chase that, where we're in a different market and we can allow that to play out. Again, we alluded in our comments to the fact that we do expect there to be attrition of contractors over the next couple years. If you're not in a sweet spot in that business, it's a tough market.

We think that's healthy for the market. We think it's healthy for us. We hope to be able to take advantage of those opportunities as they happen.

The question was really domestic on pricing there, if you're seeing better on long-haul?

Again, it's excellent.

Okay, we had a lot of weather issues in this second quarter. Is that going to be affecting any of the start-ups, and how do you see that affecting the overall quarter?

No, look. We're starting in the -- our start-ups, we started Waha. Again, we've talked a lot about DAPL today, and when we expect to start. No, we don't really expect it to have much or any impact on the jobs that we're starting. I don't think the weather pattern has been any dramatically different than what it always is.

Okay, great.

George, one for you on CapEx. I think you said net of disposals in the range of $140 million to $160 million, if that's correct can you give us a little break-down of where you're making those investments?

The majority of that investment would be typical with the way we've done in the past. We'll see increasing investment in the oil and gas sector, given the strength that we're expecting, both for balance of 2016 and then on into 2017.

Okay, thank you.

Chad Dillard, Deutsche Bank.

Good morning.

Hi, good morning.

I just wanted to dig into the install-to-home growth this quarter. You guys did about 25%. I want to understand whether it was more coming from the DirecTV installations, the AT&T going from DirecTV, or is it actually market expansion?

Also, I know that AT&T talked about DirecTV subscriptions ramping up in the second half of the year. Again, you guys put up pretty great numbers in the first quarter. What I'm trying to understand is from here, do you think you can actually accelerate that year-over-year growth through the rest of the year?

The first answer, it's a combination of everything. We saw growth across the board. We experienced really nice growth with AT&T, as well, in that business. It wasn't like it came off the backs of others. It was actually diversified growth across a number of customers, including our largest customer.

We're very bullish on where the business is headed, like we said earlier. We think DirecTV has, or AT&T has big plans for DirecTV. If they can execute on that, there's going to be plenty of work for everybody, and plenty of opportunities for us. We're hopeful they're able to execute, and we're here to support them.

Can I just get your updated thoughts on Canada? I think on the last call you mentioned a 30% decline. Has that changed? How far are we from bottom in this business?

I think now we're at the bottom. We've taken a very similar approach than what we just talked about in transmission, where we have a good presence in the market. We're not really chasing work for the sake of keeping our people busy. We've got good customers that we're supporting that are going to allow us to stay in market and have a good presence there.

As the market comes back, I think we're going to be in a great position, because I think a lot of people -- again, I think it's going to be a lot of the same things, where we're going to see a lot of contractors and a lot of vendors go away. As the market comes back, I think it's going to be a less competitive environment that will give us an opportunity to actually have a better business long term than what we had in the past.

Thanks. I will jump back in queue.

Thanks.

That is all the time we have for questions today. I'd now like to turn the call back over to Jose Mas for any additional or closing remarks.

This concludes our first-quarter call. I really want to appreciate everybody's time, and spending it with us today. We look forward to updating you on our second-quarter call. Thank you.

That does conclude today's conference.