MasTec Inc (MTZ) 2016 Q2 法說會逐字稿

Welcome to MasTec's second quarter 2016 earnings conference call initially broadcasted on August 5, 2016. Today's call is being recorded. At this time I would like to turn the call over to Marc Lewis MasTec's Vice President of Investor Relations. Marc?

Thanks. Good morning everyone. Welcome to MasTec's second quarter conference call. The following statements made regarding the Safe Harbor for forward-looking statements pursuant to the Private Securities and Litigation Reform Act of 1995. Any communications we may make certain comments 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 reflect the Company's expectations on the day of 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 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 would be discussing adjusted financial metrics 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 the non-GAAP financial measures not reconciled in these most comparable GAAP financial measure can be found in our earnings release or on the Investor or News section of our website located at mastec.com.

With us on the call today are Jose Mas, our CEO, and George Pita, our Executive Vice President and CFO. The format of the call will be opening remarks and announcements by Jose followed by financial review from George. These discussions will be followed by a Q&A period we expect the call to last about 60 minutes.

With that I will turn the call over now to Jose.

Thanks, Marc. Good morning and welcome to MasTec's 2016 second quarter call. Today I will be reviewing our second quarter results as well as providing my outlook for the market we serve. Before getting started I would like to make some general comments around where we stand today. This quarter marked my ninth year as CEO of the Company and I'm really excited about how we're positioned and our future. We had a period of dramatic growth from 2007 to 2013. 2013 was actually a record year for earnings at MasTec followed by 2014 and 2015 where we faced both market and internal challenges.

However, over the course of the last few quarters we have been very vocal and confident about the opportunities available to the Company and our ability to execute on them. While we were optimistic and we knew what those opportunities would mean for our business, we fully understood that we needed to execute and translate them into our financial results. Today I believe our second quarter financial results begin to reflect the optimism and opportunities we were seeing then and continue to see today. Now some second quarter highlights. Revenue for the quarter was $1.232 billion compared to $1.067 billion in last year's second quarter, a 16% organic increase. Adjusted EBITDA was $104 million compared to $71 million in last year's second quarter, a 47% increase and adjusted diluted earnings per share was $0.36 compared to $0.10 in last year's second quarter.

While we had a good second quarter what I'm most excited about is our future and long-term prospects. We expect the second half of this year to be very strong with revenues growing 30% to approximately $2.8 billion and adjusted EBITDA growing 63% to about $282 million, both record levels for a six-month period. But more importantly we continue to see a growing number of opportunities across our segments that further increase our future growth prospects. Our communications business continues to outperform with strong growth across all areas and excellent long-term opportunities. Our oil and gas business is performing well with strong backlog and we expect that backlog to increase significantly in the coming quarters and volume levels to be strong for multiple years. Our renewable business is enjoying a higher level of opportunities than at any point I can remember and we expect our transmission business to continue to improve. Again, we feel good about where we are in our business today and more importantly where we're headed. It's important to note that there are still challenges in our marketplace

It is important to note that there are still challenges in our marketplace. For example, commodity prices the environment in Canada, and the delay of large transmission projects. But we out performed despite of these challenges. We expect each one of those challenged areas to improve over time and those improvements will have a positive incremental effect on MasTec.

Now I would like to cover some industry specifics. Our communications revenue for the quarter was $592 million versus $469 million last year, up 26%. The increase in revenues was driven by strong increases across all of our markets. Our wireline business was up 34% our installation business was up 38% and our wireless business was up 15%. We expect this broad based growth to continue. In our install to the home market demand for our installation services is strong. We continue to see strong demand related to our DirecTV services and continue to enjoy growth from our diversification efforts.

We believe we are the largest third party independent fulfillment company in the United States and offer our customers broad geographic coverage. There is strong demand for a customer touching workforce 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 34% year-over-year and we continue to see strong demand in everything from electric distribution to fiber rollout and expansion. Gigabyte revenues and opportunities continue to expand and we are confident this will be a very healthy market for years to come.

Our wireless business was up 15% year-over-year we are bullish on the long term opportunities the wireless market affords us. Data usage and demand are expected to continue to grow at exponential levels requiring our customers to increase their networks capacities. We are encouraged by the activity surrounding 5G and what it will mean for our business. While 5G will continue to develop over the coming years we know that carriers are aggressively ramping up their small sell initiatives and densification will be a key component as 5G evolves.

We are also excited about the continued development about fixed wireless. Just last week Verizon described 5G as in effect wireless fiber. Describing how wireless fiber can make the so called last mile a virtual connection. These changes in technology should create opportunities for MasTec and 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 $120 million for the quarter versus $103 million in the prior year. We look forward to building on what was a much improved year in 2015. We are currently participating in a significant number of opportunities that are larger and broader than what we have previously experienced.

With long term tax credits in place a number of our customers are committing to longer, multi-year plans creating new types of opportunities for us which are more consistent and larger than we have previously experienced. Revenue in our electrical transmission business was $96 million versus $78 million in last year's second quarter. While we saw some improvement a significant portion of our revenues generated no profits as we discussed on our last call. As we continue to work those projects off our remaining business are performing at much better levels and we expect continued improvements through the balance of the year.

We have worked hard at right sizing our business and I am confident we are well on our way to begin making this a positive contributor to MasTec as we work to get it back to historical levels. As we announced on our previous call, during the quarter we began construction on a 70 mile, 765 kilovolt project that we expect to complete in early 2018. We expect the industry fundamentals to continue to improve during the balance of the year as demand begins to eat away at current industry capacity.

Our oil and gas pipeline segment had revenues of $426 million for the second quarter compared to revenues of $411 million in last year's second quarter. As expected we experienced a significant decline in Canadian revenues, offset by a 32% increase in oil and gas revenues in the US. For the second half of the year we're expecting US pipeline revenues to more than double last year's levels offset, in part, by continued declines in Canada. Overall second half growth in our pipeline business should exceed 60% from last year's levels. While Canadian revenues were down sharply year-over-year, margins were positive and a significant improvement sequentially from the first quarter.

All of our backlogged major projects are currently underway with the last major permit being received after quarter end. We expect the majority of our current backlog to be worked off in 2016 with the balance burning off in 2017. In addition to our current backlog we have been awarded a significant amount of work on which we are finalizing contracts and these projects are not included in backlog. Last quarter we said we expect year-end backlog to exceed first quarter levels, we are well on our way to achieving that and we expect record levels of pipeline backlog by year-end.

I continue to be surprised by the level of visibility in this segment in the years to come. We are in great shape relative to backlog in 2016, we believe 2017 is going to be even better. And our visibility for 2018 is solid. We are even in discussions on projects extending to 2019 which for us is unprecedented. This level of activity is offsetting the weakness in the shales due to commodity prices and giving contractors, years we believe, for commodity prices to rebound. It is important to note that we expect many contractors that don't have exposure to these larger jobs to struggle over the next couple of years creating further opportunities as commodity prices rebound and shale activity starts to ramp in both the US and Canada.

We are actively focused on Mexico as a growth market and we are pursuing a number of large opportunities. We believe this market has significant potential for us over the coming years.

To recap, we had a very solid quarter, more importantly we are well positioned for the balance of 2016 and the years to come. Our markets are affording us great opportunities for growth and we are executing on those opportunities. I'd also like to note that we ended the second quarter with over 20,000 team members for the first time in our history. An increase of over 3,500 team members from the first quarter. I'd 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 is because of them and the opportunities that they have created that I am so bullish about our future.

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

Thanks, Jose. Good morning, everyone. Today I am going to cover second quarter 2016 financial results including cash flow, liquidity, and capital structure as well as our third quarter and full year 2016 guidance updates. As a Marc indicated at the beginning of our call, our discussion of our financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA. Reconciliation of our financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA Reconciliation and details 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 second quarter 2016 performance second quarter 2016 adjusted results exclude the impact of approximately a $5 million pre-tax or approximately $3 million after-tax of restructuring costs in our western Canadian oil and gas and electrical transmission operations.

Restructuring costs consist primarily of employee separation costs, lease terminations and estimated losses for disposal of excess equipment. We currently expect to incur additional restructuring cost of approximately $3 million pre-tax in the back half of 2016 as part of the expected completion of initiatives to right-size size these operations and improve future performance. Here's some analytical highlights regarding second quarter 2016 performance. Second quarter 2016 revenue was $1.23 billion which approximated the upper end of our second quarter 2016 expectations. Accordingly, our current full year 2016 revenue guidance has been increased to the upper end of our previous expectations at approximately $5 billion. Second quarter 2016 adjusted EBITDA was approximately $104 million dollars, well above our guidance range of $80 million to $95 million and that was primarily driven by better than expected oil and gas segment results. Second quarter 2016 adjusted diluted earnings-per-share were $0.36, significantly above the guidance range of $0.17 to $0.27 per share.

As a result of our strong second quarter performance we have increased our annual adjusted EBITDA and adjusted diluted earnings-per-share guidance to approximately $440 million and $1.57 per share respectively. As we had previously indicated during the second half of 2016 we expect significant revenue, adjusted EBITDA and adjusted diluted earnings-per-share growth primarily due to the impact of a full ramp-up on several large oil and gas projects. We believe our second half 2016 guidance estimate appropriately captures these trends. We ended second quarter of 2016 with ample liquidity, improved leverage ratios and excellent working capital metrics. We continue to anticipate that the combination of projected strong second half 2016 earnings performance and continued management of working capital will generate significant leverage ratio metrics improvement by year-end 2016 and our current capital structure is well-positioned to take advantage of the significant growth opportunities afforded us in the various market we serve.

Now let me get into some more detail regarding our second quarter 2016 results. Second quarter 2016 revenue was $1.23 billion an increase of approximately $166 million or 16% compared to the same period last year. Second quarter 2016 adjusted EBITDA was approximately $104 million, an increase of approximately $33 million or 47% compared to the same period last year. Second quarter adjusted EBITDA margin was 8.5%, a 180 basis points improvement when compared to the same period last year. A majority of our second quarter revenue growth was driven by our communications segment where revenue increased $123 million or 26% compared to the same period last year with strong double-digit revenue increases across all of our segment operations, install-to-home services, wireless and wireline project services. Communications segment adjusted EBITDA margin was 11.2% of revenue, an 80 basis points improvement compared to 10.4% through the second quarter last year. Oil and gas segment revenue increased approximately $15 million or 4% compared to the same period last year to approximately $426 million. As expected sequential revenue levels in the oil and gas segment increased significantly due to multiple large project start ups during the quarter and we expect significant revenue growth expansion over the back half of 2016 with second half 2016 year-over-year revenue growth rates in the low to mid 60% range.

Second quarter 2016 oil and gas segment adjusted EBITDA margin was 13.3% of revenue due to the combination of improved project productivity and utilization. Given the early stages of a large project activity to be executed during the second half of 2016 we believe that the second half oil and gas segment 2016 adjusted EBITDA margin assumed in our guidance is conservatively planned at approximately 12% of revenue. Importantly during the second quarter of 2016 we saw substantial sequential improvement in our electrical transmission adjusted EBITDA results. From a first quarter loss of approximately $23 million to a second quarter loss of approximately $8 million.

Second quarter 2016 revenue for the electrical transmission segment was approximately $96 million but as expected a significant portion of the segment's revenue-generated no project -- profit margin as we work to complete a previously disclosed large transmission project. We expect that during the second half of 2016 a smaller portion of the electrical transmissions segment's revenue will come from this previously disclosed large transmission project and greater percentage of second half 2016 electrical transmission segment revenue will be generated from new projects with project profit. This effect coupled with the restructuring efforts under way in this segment is expected to generate continued sequential improvement in electrical transmission segment's performance over the second half of 2016. Our power generation industrial segment increased revenues 16% from last year to $120 million with an adjusted EBITDA margin of 4%. During the second quarter of 2016 this segment's results were negatively impacted by some project inefficiencies as to which recovery efforts are underway as well as by amounts invested in business development initiatives.

Our second quarter 2016 corporate segment adjusted EBITDA costs were approximately $16 million or 1.3% of consolidated revenue. This revenue was higher than our first quarter 2016 trend primarily due to increased costs to support planned growth initiatives and the timing of legal costs and settlements, professional fees and incentive compensation expense. Our corporate segment's adjusted EBITDA cost for the first half of 2016 approximated 1.1% of consolidated revenue and we expect this rate will decline during the second half of 2016 primarily due to the leverage benefit of the expected significant increase in second half 2016 revenue levels. To recap these factors led to a strong second quarter 2016 performance with revenue increasing approximately 16% over the same period last year to $1.23 billion and adjusted EBITDA increasing 47% over the same period last year to approximately $104 million.

Our top 10 largest customers for the second quarter of 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 16%. On a combined basis these four separate service offerings totaled 36% of our total revenue. 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. Energy transfer affiliates was 22% of revenue with approximately half of this revenue driven by the second quarter initiation of construction activities on the Dakota Access Pipeline Project. Duke Energy and pipeline construction activities related to our Waha joint venture were each at 4%, Iberdrola was 3%, MidAmerican Energy and an unnamed fiber customer were each approximately 2%, and AJL Resources, Northern States Power and Verizon were each approximately 1% of quarterly revenue.

Individual construction projects comprised 55% of our second quarter 2016 revenue with master service agreements comprising the remaining 45% and this makes it generally consistent with recent trends. At quarter end our 18-month backlog increased $1.2 billion dollars to approximately $5.3 billion compared to approximately $4.1 billion in the second quarter of 2015. This represents an approximately 31% increase in backlog over the quarter-end period last year due to the combination of significant market strength and large long haul oil and gas pipeline contract work coupled with increases in communication and electrical transmission. Regarding other areas of the income statement below the EBITDA line second quarter 2016 depreciation and amortization expense was approximately $41 million or 3.3% of revenue compared to 4.1% of revenue for the same period last year.

Interest expense for the second quarter was $12.6 million or 1% of revenue compared to 1.2% of revenue for the same period last year. And both of these year-over-year rate improvements are primarily due to the leverage effect of increased second quarter 2016 revenue. We expect 2016 annual interest expense levels will approximate $52 million or 1% of annual revenue and expect 2016 annual depreciation and amortization to approximate $169 million or 3.4% of annual revenue. Finally, second quarter 2016 adjusted diluted earnings were $0.36 per share well above the same period last year of $0.10 per share and our initial second quarter guidance expectation of $0.17 to $0.27 per share.

Now I will cover our 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 entered the third quarter with ample liquidity of approximately $363 million, improved leverage ratio metrics and excellent working capital metrics. As I indicated last quarter, despite expected increased levels of working capital investment during 2016 associated with forecasted significant revenue expansion we expect that our full year 2016 operations will generate excess cash for either debt reduction or share repurchases as market conditions warrant. Additionally, anticipated 2016 earnings should generate a significant improvement in our -- in our year-ends 2016 leverage ratio metrics when compared to year-ends 2015.

Our second quarter 2016 accounts receivable days sales outstanding or DSOs were 71 days compared to 74 days for the first quarter of 2016 and 86 days for the second quarter of last year. Our working capital metrics are in excellent shape and slightly better than our previously indicated expectation range for DSOs somewhere between the mid-to-high 70s. Regarding our spending on capital equipment second quarter 2016 cash CapEx net of disposals was approximately $54 million. We anticipate that 2016 cash CapEx levels net of disposals will approximate $80 million to $90 million. Moving on to our 2016 full year guidance, we are currently projecting annual revenue of approximately $5 billion with adjusted EBITDA approximating $440 million or 8.8% of annual revenue and adjusted diluted earnings-per-share approximating $1.57. This guidance increase incorporates the impact of our second quarter 2016 results and reflects the expectation of significant revenue and adjusted EBITDA growth in the back half of 2016.

Taking into account our first half 2016 actual results our annual guidance indicates that second half 2016 revenue levels are expected to approximate $2.8 billion of revenue with adjusted EBITDA approximating $282 million or 10.1% of revenue. We believe this guidance expectation appropriately captures the current trends in our business, a significant expansion of long haul pipeline activity. Now, as a reminder we experienced similar trends -- similar business trends in 2013 and we generated almost $260 million in adjusted EBITDA during the back half of that year. We anticipate our 2016 annual GAAP income tax rate will approximate 41.9% and our 2016 annual tax rate applied to our adjusted net income results will approximate 41.3% with this slight difference due to the impact of fixed permanent book tax differences on higher estimated 2016 adjusted net income.

Lastly, our estimate for the full year share count for diluted earnings-per-share is about 81.5 million shares for the third quarter of 2016, 82 million shares for the fourth quarter of 2016, and 81.5 million shares for the full year of 2016 period. Turning to our third quarter 2016 guidance, we currently estimate that third quarter 2016 revenue will approximate $1.5 billion which represents a year-over-year revenue growth of approximately 35%. Third quarter adjusted EBITDA is expected to approximate $155 million or 10.3% of revenue and this represents approximately a 70% increase when compared to the third quarter of 2015. Lastly, adjusted diluted earnings-per-share is estimated to approximate $0.69 per share compared to $0.26 per share during the third quarter of 2015, an increase of approximately 165%.

In summary, second quarter 2016 results were significantly above our initial expectations and we continue to expect significant revenue and earnings improvement throughout the balance of 2016 as we execute on multiple large projects. We also see 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?

Thank you. (Operator Instructions). We'll take our first question from Matt Duncan with Stephens.

Hey. Good morning guys. Congrats on a really great quarter.

Thank you, Matt. Good morning.

So, Jose, I want to start by talking about the communications segment. You guys are seeing very broad-based strength there and I am curious if you can us some help sort of thinking through what level of growth we should expect that business to maintain here going forward, the comps going to be a little bit harder in the third quarter, but it sounds like you are expecting all of these end markets to stay very good. You know, this year certainly and it sounds like in the next year as well. So just talk about what you're seeing in that market.

Well, you know, I think we're surprised with I think the broad-based growth, everyone of our sub-markets within that group is doing really, really well. We expect it to continue, we expect strong growth in the second half of the year across all those sectors. You know, we do expect a little bit of slowdown in that growth,, if we would have been talking six months ago we probably wouldn't have expected that amount of growth in the first half of the year so I think as we look at the second half we see that growth moderating but we still see strong double-digit growth for the back half the year consistently between the third an fourth quarter.

Okay. That helps. And then second question just moving on to the oil and gas business. You know, you had a really great margin there this quarter. I guess the guide is that it's going to be a little bit lower and first of all how much conservatism is baked into that and a then secondly as we look at the bidding environment you mentioned that you have got, it sounds like a lot of stuff in hand where you just don't have a signed contract yet. Still expecting year-ends backlog to be above the first quarter level. I don't know if you can size for us maybe how -- how large are the opportunities that you're working on. Last year I think you gave us an amount that you expected to book by year-end. I don't know if you're in a position to be able to do that again now, but just any kind of help there framing up the opportunity would be useful. Thank you.

Sure. So the first part of the question was on margins as it related to oil and gas segment?

Yes.

As we look at the first half of the year we obviously had a lot of projects that we were working on some of which we completed some of which we are still working on. We had a nice mix of work. We did very well in the work we were working on. A lot of the work that we're doing in the second half of the year is actually on newer projects that were much earlier in the cycle on and I think when you look at our guidance, we're kind of looking at it the way we did from the beginning of the year. We're executing better or we executed better in the first half of the year than we were expecting. To be honest we fully expect to continue to execute at those levels in the second half, but I think it's still too early for us to make those commitments so we've tempered our expectations, in the second half at the 12%. Again, if we continue to perform at the levels we're currently performing at, we should do better and hopefully a lot better. The second part of your question which was on the backlog related to oil and gas. You know, last year we talked about where we would end the year. We end the year with over $2 billion worth of backlog, which is I think what we were really trying to anticipate and guide the market to late in 2015. I think our commentary this year is no different, right? We expect to finish the year with record levels of backlog which means we're going to go do exceed those levels in 2015. I'm really excited about it. I think -- we think there's tons of opportunities, we don't want to give a specific number, but we're in great shape 2017 is going to be a great year and we're really excited.

Okay. Great. Thanks again and congrats on a great quarter.

Thank you, Matt.

We'll take our next question from Jason Wangler with Wunderlich.

Good morning, Jose.

Morning.

I wanted to ask on the electrical transmission side, it really saw a lot better on the EBITDA line there to sequentially even without a lot more revenue gains-- you kind of talked about in your comments kind of getting some old projects out, but if we look at that revenue type run, can you get back to certainly break even or maybe even profitability if you say in that $90 ish million dollars type revenues as you kind of get the old projects out?

Well, we have talked about getting to the level of obviously break even an profitability through year-end. I think we were pretty vocal about that on our first quarter call. We definitely expect improvements both in the third and fourth quarter. We think we're in the -- on the right track and we're going to get there. We do expect revenues to drop a little bit from current levels. Again a lot of this work that we're burning off is nonprofitable work or -- or work that we're doing at break even margin. So the mix is going to really help us but we do inspect revenues to drop a little bit in the second half of the year versus the first half.

Okay. That's helpful. Thank you. And then just on the oil and gas side, you know, again you have given us pretty good color but on top of what you kind of said you would have possibly in hand soon. Are you seeing any delays out there in terms of folks pushing back projects or anything on the margin? I think we're kind of hearing about that a little bit whether its regulatory or otherwise, just kind of your thoughts on the outlook in that region outside of what you already have in hand?

Sure. When we look at the market as a whole, we had very good indications as to what projects we would be working on and when and I think that's playing out. There's obviously and we keep saying it and I know there's a lot of hesitancy out there and I think time is going to make people believers, but there's so much work there's so much visibility there's such a high level of activity and we fully expect projects to of move, right? Some projects are going to come in and some projects are going to get pushed out. We have been very fortunate that our projects have stayed steady. We don't -- we haven't seen delays in the projects that we're working on or expect to work on. There have been other delays in the market that's creating in my mind opportunities for us because I think some of those projects are going to get pushed out into our 2019 and 2020, which I think is going to be good for the overall marketplace. We've said it and I am going to say it again there is so much work in the market that everybody that's involved in this industry, everybody that's involved in this type of work should have a phenomenal next couple of years, and I think the next couple of years is multiple years which is incredible visibility than what we have historically been used to and I think all of us that are in the space are going to enjoy that and benefit from to.

Great. Thank you. I'll turn it back.

Thank you.

Next question from Matt Tucker with KeyBanc.

Good morning. Congrats on the quarter.

Thanks, Matt. Good morning.

You know, it seems like for the second half clearly execution on Dakota access is going to be pretty key. Could you just talk about the execution risks there and are there any kind of project-specific risks that we should be thinking about that are basically typical to every pipeline project and do you feel like you have built in enough contingency in your guidance for the risks that you see there?

Sure. We got a couple months under our belt. So far the project that did receive its last major permit after quarter end but as George stated about half of our energy transfer revenues are just above half of our energy transfer levels came from that job. So I think we're -- I think we have got a great feel for how that project is going to go and where we're at. It's obviously a big project for us. There's a lot of work to do. The devil is in the details and obviously execution is important but we feel great about it right now.

Great. Thanks. And then sounds like the outlook for oil and gas in the US is very strong. I was hoping could you expand a little bit on what you're seeing in Mexico and Canada, you know, and Mexico the type of opportunities that you're seeing and then Canada sounds like it's a pretty tough market still though you're doing okay, but do you see any opportunity for that market to start improving?

We're big believers in Canada. Obviously, commodity prices need to continue to improve and uptick. We saw -- we saw an improvement obviously during the quarter in the commodity price. We actually saw an uptick in activity related to that increase. I know that it dropped back down a little bit so I think it's a market that's highly sensitive to commodity prices. You know, one of the things that I really feel privileged about is we're in great shape for the next couple of years 2019 and when commodity prices do rebound, it's going to have a significant impact, especially on Canada, and I think we're going to be in a great position to allow that to incrementally help us. It's a tough market today. I think a lot of our competitors are suffering. I think we're going to see a lot of the smaller competitors go by the wayside which is going to create further for us as that market comes back so we would love that market to be doing well, obviously, we would love all of our markets to be doing well all the time but considering what is going on, considering our book of business we're in a privileged position an when Canada comes back, we think it's going to be incrementally better for us even from historical levels. We think we'll be able to pick up a bigger share of that market. As it relates to Mexico again we're extremely bullish. You know, the commodity prices has also impacted Mexico. You know, Pemex which there is a lot written on it, Pemex originally do a lot of work directly for Pemex. Pemex is entering into a lot of public private partnerships selling off assets and development projects. So the market there changed as we were -- I would say in pretty late stages of negotiations on some stuff. We're still really bullish. We think it's going to be -- you know, our customers will probably not end up being government -- a government agency like Pemex but rather private guys and we're in discussion on a bunch of projects and we feel good about it. We think one of them is going to hit soon and over the next couple of years it's going to be a meaningful part of our business.

Thanks for that. I'll turn it over.

Thanks, Matt.

Next question from John Rogers with DA Davidson.

Hi. Good morning.

Morning.

Congratulations as well.

Thank you.

One thing, Jose, great quarter, but the dip that you're forecasting into the fourth quarter just in terms of revenue is that -- is that just a function of seasonality project mix?

We have got a big second half.

Yes.

To accomplish.

Or just conservatism?

Look, I think it's a mix of everything. We're pretty happy with the level for the second half of the year, right at north of 280 of EBITDA. You know, $2.8 billion in revenue. You know, is there opportunity for improvement on that? We have talked about it, right? I think we're taking a conservative view on margins in the pipeline space in the second half of the year. We would he hope to beat that. You know our communication margins were solid in Q2, but I think it's important we added 3500 people in the quarter and when you add that many people, they're not as efficient and as productive as you want them to be initially and I think as time -- as they stick a little bit and work on the job longer we're going to see efficiencies in that across all of our businesses you know you never know what happens in whether--in the fourth quarter so it's -- it's a conservative view. It's a solid view. You know, some of the backlog that we're going to add to oil and gas has the potential for starting in the fourth quarter we have not included that in our guidance, but quite frankly if that starts it's obviously going to be added into everything that we're talking about today.

Okay. And then just on the renewables your comments there, is this a market opportunity in 2017, 2018 and I assume it's both on the power side and transmission.

When he talked about power it was for more our renewable business so what we are seeing in renewables is customers are -- are making longer-term commitments. For the first time since we have really been in this business we have got a long-term tax credit in place. I think our customers are viewing that very favorably. I think people are thinking out in much more in terms of just the one year the next tax credit extension which has really been the environment that we have been in since 2008. So it's different. It's a change. We've got subset of opportunities is pretty large relative to anything we have seen historically and I feel really good about the opportunities in that market for the first time in a long time.

Okay. Great. I'll get back in the queue. Thanks.

We'll take our next question from Alex Rygiel with FBR.

Good morning. Great quarter, Jose.

Hey. Good morning, Alex.

I can't remember the last time I saw your stock up almost 20% on a print, so congrats on that.

I haven't seen it yet so I'm glad to hear that.

It's trading well. Two quick questions. First you talked a lot about your -- in your oil and gas segment your bidding pipeline being very strong and winning a lot of significant amount of work subsequent to the end of the quarter. What is keeping you from including these in backlog at this time?

We don't include -- we only include things in backlog when we have a fully signed executed contract. And--

We only include things that are signed as of quarter end right so anything that is happening in Q3 we'll transact and finalize in Q3. Odiously we have clear visibility on a number of projects that we talked about that are going to give us a strong bookings performance in the second half of the year, but as our practice has always been and we're consistent with it we don't book -- we don't record things in backlog unless they're fully signed and executed by at the end of the quarter.

Alex, you still there?

Mr. Rygiel, your line is still open you may want to depress your mute function. Once again, Mr. Rygiel, your line is open. You may want to depress your mute function. With no response we'll move to our next question. We'll take our next question from William Bremer with Maxim Group.

Good morning, gentlemen. Extremely -- very, very nice quarter. Congrats.

Thank you, good morning, Bill.

Especially after a tough 2015. So my first question really is going right back to oil and gas. Can you give us a little more color a little more granularity of the size of these pipelines I'm assuming most of them are on the nat gas side and should we expect a -- an increase in CapEx being deployed to that sector? That segment .

Sure. So obviously the projects are -- are very large in size. You know, it's what we have been talking about over the course of the last year or so. Again, we're fortunate in that we're seeing some very, very large projects that we expect to be executed I think 2017, 2018, 2019, I think that's going to drive the business. So as we sign contracts and we're ready to, you know, talk more specific about contracts we'll probably give you some more color but not until then. As it relates to CapEx I think one of the really surprising things for us has been our CapEx levels this year. You know, we geared up over the course of the last 18 months. You know, we peaked in CapEx I think at the end of 2014. We have been able to moderate our CapEx. Our CapEx is pretty much in line for 2016. I think it's probably even below what we originally expected and we're able to execute on the work that we have got at those levels so I don't expect to see changes in our CapEx levels despite the amount of work that we expect to win and execute on.

Okay. My follow-up is in communications. Specifically, with your two top customers AT&T, DirecTV, now that you're get -- now that the merger is finalized what a has been the -- the commentary between you and them in terms of additional CapEx? We're starting to see it in the numbers today but can you give us a little more granularity in terms of what their thinking is and how that affects you guys?

I think they're doing very well with the business. I think obviously it was -- there was a big transaction, there was some uncertainties going into that transaction in terms of what it would ultimately mean for us. Obviously, the business is growing at levels that we haven't seen in six, seven, eight years so it's exciting. We're adding a lot of bodes there and with that said I think the whole market is evolving, I think fixed wireless is real, I think it's going to be a big part of our business that's going to touch multiple aspects of our business. I think it's going to touch our wireless business because a lot of that is going to be on large towers and then it's going to affect our installation business because there's going to be a portion of that business that requires some sort of installation at a home or a business. So I think -- I think it's great. It's a very positive trend for us.

Okay. Great. Thank you

Thank you, Bill

We'll take our next question from Noelle Dilts with Stifel.

Thanks. Good morning.

Morning, Noelle.

Just wanted to get your thoughts on how to think about EBITDA margins as we head into 2017. Do you think we're get back to the point where you could achieve a double-digit EBITDA margin on a full year basis and could you touch I guess specifically on how you're thinking about oil and gas then and also transmission next year?

Sure. So if you look at 2016, obviously, our transmission business is a drag on us full year. Obviously we have a loss there. If you would actually back out the loss in the revenue of that business, the remaining business would be performing at a double-digit margin. On a full year basis so that's good. Obviously we need to fix that business and get it back on track. Again, I mean we're -- you know, we're one quarter into what we think is going to be obviously the start of a really great run for us. I do -- I would expect across all of our segments our margins to improve so to the extent that we can get transmission back online to where it needs to be and then I would fully expect to be able to achieve double-digit margins.

Okay. Great. And then in terms of the wireline work that you're doing can you give us a sense --and also the work that you're seeing out there on the wireline in terms of opportunity. Can you give us a sense of how many customers you're working for at this point, how you're thinking about that moving forward and the growth rate there?

Yes. We're working for the same customers we have been working for. We have been in this business for a long time. I think we're obviously growing our relationships with a lot of our existing customers and thus the growth in revenues. I don't think there is a new customer subset out there that we're -- we're working for particularly. It's -- you know, it's a robust market a lot is going to happen. Again, I think we're in very early stages of what that market is going it mean to our business an to the industry in general. It's a very exciting time. There's lots of opportunities there's lots of demands by our customers and I think those that are able to position themselves and execute are going to benefit from it.

Okay. Thank you.

Thank you, Noelle.

We'll take our next question from Alan Fleming with Citigroup.

Good morning, gentlemen. Congratulations on a nice quarter.

Thank you.

Jose, just given all the worked out there for 2017 and even 2018 do you have the capacity that -- that you either need or you want to execute and go after all this work or do you need to continue to invest to increase your capacity in oil and gas?

We're expecting a 60% increase in the second half of 2016. If you back out the slowdown in Canada we're actually doubling our US business in the second half of 2016 versus where it was in the second half of 2015. If you were to annualize that, it would obviously give you a number that is far greater than our full year revenue. So we have the capacity and the capabilities of significant growth without significant investment.

Okay. That's helpful. And then let me maybe switch gears an ask you about transmission. The second quarter sequential uptick in backlog. You know, it seems like maybe growth here is modestly turning in your favor. So how much of this is kind of end-markets getting a little bit better and firming up and how much of this is you guys are kind of re-focused on the business and winning work after the -- the investigation last year and you kind of have gotten things back on track?

Well, a couple things. First, you know, we have always been focused on this business. I think we obviously had a tough period with lots of things going on and, you know, the market is softer. There's no question about it. We have said all along we need to right-size side our business and put our successful as we can. This is an important business for us its a business we're committed to in the long-term. You know, with that said we do expect revenues to somewhat decline. I think we're working off some bigger projects as we work them off we think we're going to have a somewhat smaller base going into 2017 than we had I think in 2016. It's not dramatically different, but it will be smaller. I think we'll be better suited for that size. We'll be right-size to execute on that and for us the story in 2017 isn't going to be whether we're at break even or not but it's how profitable can we be and that's really what we're focused on and trying to achieve.

And we'll take our next question from Bobby Burleson with Canaccord.

Good morning. So just curious on the communications business. You're talking about some moderation in growth rates versus the first half here in the second half. Curious in terms of the sub segments there whether or not you expect mix to shift more to wireline and if you expect growth rates there to stay elevated versus wireless.

Yes. Let me be clear, right? We grew 26% in the second quarter. I think that that was above what our expectations were. You know, growing 38% in our installation business exceeded what we were expecting. So as we look at the second half of 2016, I think -- I think we're moderating it. We do expect our wireless business to have higher percentage growth in the second half of the year than what they experienced in the first half of the year. It's what we have been saying all along from the beginning of the year. So their growth rates will uptick. We expect double-digit growth across all of our sub segments in that group in the second half, but I don't think we can model and plan 38% and 34% growth respectively for installation and wireline every quarter. We hope we're wrong and we hope we achieve it, but we have got a more moderate mid-teens growth rate assumed for our different businesses.

Okay. Thanks. And then just quickly switching gears to oil and gas. Just curious, you know, it sounds like you're taking a conservative approach to second half guidance in that business considering you expect your execution there to hold up. I'm wondering was there a change in the methodology or the kind of attitude of guidance towards that business as you looked at the first half versus as you look at the second half? Is that to do with the environment you're seeing in terms of maybe elsewhere seeing some project delays, things like that?

No. Look, I think we're coming off of a 2014and a 2015 that were tough for our business for lots of reasons. We -- we finished again, we finished 2013 in a record year we were hopeful for 2014. Some of the markets turned on us. We've -- we have not enjoyed where we have been at the last 24 months as a Company and where we have been at every time, you know, we're talking about guidance and I think 2016 is really -- the second quarter particularly is really a reset for us. We're extremely excited about what we expect to happen in the balance of the year. We have always said that we want to guide conservatively and be in a position to beat and exceed the expectations that are out there. We think I that over a long period of time we delivered on that. We understand that we had our issues over the last two years, but we -- I think it's always how we have approached guidance and -- and how we will continue to approach guidance.

Thank you. And congratulations.

Thank you very much.

Next question from Dan Mannes with Avondale.

Thanks. Morning, everyone.

Hey, good morning Dan.

A couple quick follow-ups first on the communication segment particularly on install-to-home the 38% growth sounds tremendous. Can you maybe break that out a little bit between, current territories DirecTV, any territory expansion and/or any kind of the new initiatives you were going on. Just trying to understand the strength there.

Well we're not anything of any new territories in our DirecTV market so it all has to do with same-store sales growth in that business and then the results of our diversification efforts. I think it comes from both. Obviously, I don't know that we want to get into break out those numbers in granular detail, but I think we have broad-based solid performance across both the work that we're doing with our existing customers, the growth in work that we're doing with customers that we have added over the course of the last year and even some new customers that we have more recently added that are all helping that number.

Okay. Got it. And then on the renewable side given what we are seeing the five year PTC extension it sounds like you are seeing a pretty good dialogue. Can you talk, maybe about the potential there from a margin perspective its historically been one you have your lowest margins businesses. Is there potential given the potential robust outlook to see maybe a little bit more attractive level and can you maybe scope that for us?

The short answer is yes. I think if you go back a number of years, it was -- it was more of a higher single digit margin business and I think if things play out in the market the way we hope they will, I think getting back to that level is very achievable.

Great thank you.

Thank you, Dan.

Next question from Andy Wittmann with Baird.

Great thanks. I got someone to drill into a little bit into the pipeline opportunity as it relates to Mexico. Obviously this is an area you guys have talked a lot about We are starting to see announcements and press releases from players like TransCanada and others that are talking about doing those. Jose, I was hoping you could give us an update on where you're strategy is there and how well (inaudible) those projects are and when you feel like the market might see some of those final investment decisions being made.

Well, I think you just allude to some, right? There's no question that people are making the investment decisions and people are going forward with projects. There were a couple of projects that -- there's definitely been a couple of projects in the first half of the year any way that have been announced and that are going forward. Those are all opportunities for us, you know, quite frankly we've -- we have been working on specific projects that -- that are indifferent stages of development and, again, we feel good that ultimately those projects are going to come to fruition and we will have a very solid opportunity to participate in those. I think they're coming. I think there have definitely been delays because of some of the issues that Pemex has had and some of the pivoting they have done in terms of creating these private partnerships and selling offer some of their assets and development jobs and that's really why I think it's taken the amount of time that it's taken but I don't think the environment has changed the need for those projects or the desire for those projects, and again I think we're well-positioned. So I think it's coming but it's taking much longer than we would have hoped or anticipated, but I think we're in a great spot.

Okay. Well, then maybe a similar question on -- on pipelines as we look at the level of permitting. Certainly, I think you're right, you had the earlier comment that projects you have been on have moved. Others have not. But as you look into your 2017, which looks strong, how well permitted are they? Are they in advanced stages of permitting where it's really a formality now are or there some real critical things that need to break you're way for 2017 to happen, not from an economic standpoint, not from a customer discussion but really from the regulator and the permitters.

Specifically the 2017 projects I think we're in great shape.

Okay. We'll leave it will. Thanks.

Thank you.

We'll go next to Chad Dillard with Deutsche Bank.

Hi. Good morning. How are you guys doing.

Hey. Good morning.

So can you talk about whether you are starting to see (inaudible) activity in 5G and just talk about how you see this ramp playing out relative to 4G. Any color on size, duration would be helpful. And also what sort of operational changes would you need (inaudible) to support the rollout?

So I think levels of 5G currently are -- are insignificant because I think it's way too early. I think carriers are still trying to determine what is going to ultimately be. They have all talked about really sticking their toe in the water currently or even 2017 with a lot of initial work. We think we might see some acceleration into that. We actually expect some nice momentum in 2017 related to some of that initiative, but it's definitely an initiative that's going to play out a lot more in the 2018, 2019, 2020 time frame again, one of the interesting points is I still think we don't know exactly what that's going to look like because there's so many different types of technology being talked about and times of rollout being talked about. Again we think we're well-situated for all of them we have been in this market for a long time. We touch a number of the fact that we work on a for electrical lines and have the ability to really have a robust offering around small cells because of our different service offerings across our Company, those are really competitive advantages that we have and -- and I think we're tooled well for it and I think we're in a great position (inaudible) that should roll out. I think in terms of size, scale and what it means I think time will tell, but we obviously are pretty bullish about it and think it's going to be pretty significant for our business.

Thanks. That's helpful. And then just moving over to cash flow. Can you just talk about how to think about that and just like the working capital needs for the balance of 2016 as you're ramping a lot in the back half. (inaudible) could you just talk about how you're thinking about you're leverage target and at what point will you look to change your capital allocation plans?

Sure. We've -- this is George. We have talked about that, for the year of 2016 we're going to invest in working capital obviously with our growth. However, that being the case we think we're going to generate cash that will be available for de-leveraging or share purchase et cetera. So I think we would expect improved cash flow in the second half of the year. That will probably happen closer to the fourth quarter because sequentially our revenues will decline. You know, based on the numbers that we're modeling we see a slight decline, absent share repurchase or M&A or something along those lines, we see a slight decline in overall debt levels by year-end and that coupled with the significant increase in -- in EBITDA puts you well south of our historical leverage metrics and south of the 2.5 -- 2.5 leverage target. That's what we see happening right now in terms of the -- the announced our DSOs and our working capital metrics have been very well managed during this process. We expect that to continue for the balance of the year. So we're very comfortable with where we are in our capital structure and think that we're going to end 2016 in excellent shape.

Thanks, guys.

Thank you.

And with no further questions in the queue I would like to turn the call back over to Jose Mas for any additional or closings remarks.

Sure. Again, we just want to thank everybody for participating today and their interest in MasTec and we look forward to updating everybody on our third quarter call in the coming months. Thank you.

And that does conclude today' conference. Thank you for your participation and you may now disconnect.