MasTec Inc (MTZ) 2018 Q1 法說會逐字稿

Welcome to MasTec's First Quarter 2018 Earnings Conference Call initially broadcast on May 1, 2018. Let me remind participants that today's call is being recorded. At this time,

I'd like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Marc, please go ahead.

Thanks, Haddie, and good morning, everyone. Welcome to MasTec's First Quarter 2018 Earnings Conference Call. The following statement is made pursuant to the safe harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995. In these communications, we make certain statements that are forward-looking, such as statements regarding MasTec's future results, plans and anticipated trends in the industries where we operate. These forward-looking statements are the company's expectations on the day of initial broadcast of this conference call, and the company does not undertake 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 measures not reconciled in these comments to the most comparable GAAP measure can be found in our earnings release, press releases, our 10-Ks and Qs or posted on the PowerPoint presentation located in the Investors and News sections of our website located at mastec.com.

Today, we have with us 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 José, followed by a financial review from George. A discussion will be followed by a Q&A period. We expect the call to last about 60 minutes. We had another great quarter and a lot of important things to talk about today.

So I guess, I'll pass it over to Jose. Jose?

Good morning, and welcome to MasTec's 2018 First Quarter Call. Today, I will be reviewing our first quarter results as well as providing my outlook for the markets that we serve.

First, some first quarter highlights. Revenue for the quarter was approximately $1,400,000,000, an increase of 21% over last year's first quarter. Adjusted EBITDA was approximately $108 million. Adjusted earnings per share were $0.35. Cash flow from operations was approximately $84 million, and backlog at quarter end was $7.6 billion, a nearly $500 million sequential increase from year end.

In summary, we had another excellent quarter. We're very proud of our first quarter results, and they were significantly better than we had expected. We exceeded our revenue guidance by 14%, our EBITDA guidance by 20% and our EPS guidance by 75%.

In addition to our financial results, operational momentum for our business is building. We are seeing accelerating opportunities across all of our business segments. We had sequential backlog growth of nearly $500 million, with a backlog increase in every one of our reportable segments. Our Oil & Gas segment continues to enjoy strong demand for its services, both in long-haul and shale related projects. Our fiber installation business continues to grow and win new opportunities, as carriers are aggressively rolling out fiber for both higher-speed Internet connectivity and support for 5G-related wireless services. Our wireless business continues to ramp, as we begin to see significant increase in investments related to FirstNet and 5G services. In the recent announcement between T-Mobile and Sprint, they guided to a potential network investment of $40 billion over a 3-year period.

We continue to see a growing number of opportunities in the Transmission business, with a significant number of projects in the RFP stages, and in our Power Generation segment, we had strong backlog growth, coupled with a growing number of future opportunities.

Again, while we're performing well financially, we're even more excited about the opportunities in front of us for both 2018 and beyond. We're expecting 2018 to be another record year for MasTec, and with our first quarter performance, we think we're well on our way to achieving that.

Now I'd like to cover some industry specifics. Our communication revenue for the quarter was $627 million versus $560 million last year, up 12% from last year's first quarter. The increase in revenue was driven by strong performance in our wireline business, coupled with continued storm restoration work in Puerto Rico. Wireline revenue for the quarter was up 69% year-over-year, and we continue to see strong demand. Nationwide fiber deployment projects from both telephone companies and cable TV companies continued to expand, and we expect demand for those services to continue to increase over the coming years.

We continue to believe that we are at the beginning of what will be one of the most aggressive fiber build cycles in our history. In our wireless business, we're seeing incremental growth in order activity. Wireless backlog has grown, and we expect that trend to continue. While we're expecting 2018 to be an excellent year for wireless, we expect a more aggressive ramp into 2019 and beyond.

We expect deployment of FirstNet and 5G to be back-end loaded in 2018, and very strong with years to come. While I said it earlier, T-Mobile's announcements on plans to spend $40 billion over 3 years if their deal with Sprint goes through, is a considerable increase in spend compared to recent spend levels by both companies. If the deal closes, we expect that to be a significant positive development for both us and our industry.

Moving to our Power Generation and Industrial segment. Revenue was $118 million for the first quarter versus $47 million in the prior year. We are expecting strong growth in this segment, as demonstrated by our backlog of over $700 million, up over $100 million sequentially. We're experiencing strong demand for our services. We did an excellent job in improving margins in this segment over the last 2 years, and we look forward to preforming and executing in 2018.

Revenue in our Electrical Transmission business was $114 million for the first quarter versus $99 million in last year's first quarter. Backlog and transmission was up slightly sequentially, and while 2018 should be a good year, we expect 2018 to be a year of backlog growth.

Post quarter end, we were verbally awarded a very large transmission project that will go -- that we expect will go into backlog as of the second quarter.

Our Oil & Gas pipeline segment had a revenue of $537 million for the first quarter compared to revenue of $456 million in last year's first quarter. Backlog also increased sequentially to roughly $2.7 billion, a record level.

EBITDA margins in our Oil & Gas segment were 6.2% for the quarter comparable to fourth quarter levels. Margins continue to be impacted by our large cost reimbursable project. We expect that project to be substantially completed in the second quarters and margins to considerably increase for the balance of the year.

Our Oil & Gas segment continues to enjoy strong, long-term demand for its services from both long-haul and shale activity. We have excellent visibility and expect a very strong environment for years to come.

To recap, we're off to a great start in 2018. Our backlog is strong, and more importantly, our future outlook is excellent, as we are enjoying growth opportunities across all of our segments. We increased 2018 revenue guidance to $6.9 billion, 2018 EBITDA to $700 million and earnings per share for 2018 of $3.65.

I'd like to take this opportunity to thank the man 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 their performance that I'm so excited and 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'll cover first quarter financial results, including cash flow, liquidity and capital structure as well as our increased guidance expectation for 2018.

In summary, we are off to a strong start in 2018, above our initial expectations, and are proud to increase our 2018 full year guidance expectation for revenue, diluted earnings per share, adjusted EBITDA and adjusted diluted earnings per share. More importantly, we remain bullish that several multiyear infrastructure programs that our customers are initiating during 2018 give us sizable growth opportunities in 2019 and beyond. We believe our growth potential has not been appropriately reflected by The Street, and thus, we completed a share repurchase and 10b5-1 program during the first quarter of 2018, purchasing approximately 2 million shares.

We then subsequently authorized an additional $100 million share repurchase and 10b5-1 program, under which we repurchased another 545,000 shares in April. In total, on a year-to-date basis through April, we have repurchased approximately 2.6 million shares or slightly over 3% of our total share base. These year-to-date purchases are approximately $0.05 accretive to diluted earnings per share during 2018 and approximately $0.07 accretive on a 12 run rate basis.

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

Even though we talked about it last quarter, I would like to reiterate that MasTec is a big beneficiary for the Tax Cuts and Jobs Act, both directly and indirectly. We expect that our 2018 GAAP and adjusted tax rate will approximate 29.5% of pretax earnings compared to the 39% adjusted tax rate in effect for 2017.

In addition to this direct benefit, several of our large customers have made public statements regarding incremental capital expenditures in 2018 and beyond because of tax reform, providing even more support for our expectations of favorable end market trends in the markets we serve. Also, as we indicated last quarter, we adopted the new GAAP revenue recognition rules in the first quarter of 2018, and as expected, this had no material impact.

Here are a few summary comments regarding our first quarter 2018 performance. First quarter 2018 revenue of $1.4 billion grew 21% over last year with strong double-digit increases across the Communications, Oil & Gas, Electrical Transmission segments and a 152% total increase, of which 72% was organic in the Power Generation and Industrial segment.

First quarter 2018 booking activity was excellent, and we sequentially grew our backlog approximately $464 million to approximately $7.6 billion. This marks the second consecutive quarter of record total backlog as well as the second consecutive quarter of record segment level backlog in Communications, Oil & Gas and Power Generation and Industrial. We believe our record backlog level's evidence the significant strength of demand in our end markets for 2018, 2019 and beyond.

First quarter 2018 adjusted EBITDA was approximately $107.8 million or 7.7% of revenue, approximately $18 million above our guidance expectation.

First quarter 2018 adjusted diluted earnings were $0.35 per share, $0.15 per share above our quarterly guidance expectation. We repurchased approximately 2 million shares during the latter part of the first quarter of 2018 at a cost of approximately $98 million, and due to timing, these purchases minimally impacted our first quarter per share results, but will favorably impact our per share results over the balance of the year, as I indicated earlier.

We ended the quarter with a 2.3x of book leverage ratio and ample liquidity, and this level reflects both the impact of 2 million shares repurchased during the quarter as well as higher-than-normal levels of working capital invested in certain large, long-haul Oil & Gas projects, as we work towards completion in the coming months.

As we indicated last quarter, we expect working capital to normalize during the second half of the year, which should generate a record level of cash flow from operations during the full year 2018 period.

Now let me get into some more detail regarding first quarter segment results. First quarter 2018 Oil & Gas segment revenue increased approximately $80 million or 18% compared to the same period last year to approximately $537 million, with an adjusted EBITDA margin rate at 6.2% of revenue.

First quarter 2018 Oil & Gas segment adjusted EBITDA margin rate performance was similar to our fourth quarter 2017 performance, and reflects continued margin pressure associated with increased revenue on a 2017 large project, primarily on a cost reimbursable basis. This project is approximately 90% complete, as of the end of the first quarter, and we anticipate substantial completion during the second quarter of 2018, leaving minimal restoration activity in the second half of 2018.

First quarter 2018 Communications segment revenue increased approximately $68 million or 12% compared to the same period last year to approximately $627 million, with strong adjusted EBITDA margin rate at 13.1% of revenue. First quarter 2018 revenue increases for this segment were driven by increased wireline, fiber and storm restoration services, and these services were the primary factors in Communications segment adjusted EBITDA margin rate performance exceeding our initial expectation.

First quarter 2018 Electrical Transmission segment revenue increased approximately $15 million or 15% compared to the same period last year to approximately $114 million, with adjusted EBITDA margin rate at 4% of revenue.

As we have noted in the past, we believe this segment's 2018 full year revenue and adjusted EBITDA will slightly exceed 2017 levels with a potential for sizable future growth, as current large project bidding activity is anticipated to create increased levels of 2019 project activity.

First quarter 2018 Power Generation and Industrial segment revenue increased approximately $71 million or 152%, with approximately 72% of this growth occurring organically, and the balance coming from acquisitions.

First quarter adjusted EBITDA margin rate was 4.1% of revenue, and this reflects the negative leverage impact on overhead levels from delayed start-ups of some wind renewables projects that have shifted into the second quarter. We continue to anticipate this segment will show sizable growth in 2018, and could exceed $600 million in 2018 annual revenue at a mid-single-digit adjusted EBITDA margin rate.

First quarter 2018 other segment equity and earnings from our equity interest in the Waha pipeline operations was approximately $5.6 million, and we currently anticipate that this investment will generate approximately $24 million to $25 million in earnings in 2018, as we benefit from commercial pipeline operations optimization.

Now I will discuss the summary of our top 10 largest customers for the first quarter 2018 period as a percentage of revenue. AT&T revenue derived from wireless and wireline fiber services, were approximately 18%, and install-to-the-home services were approximately 9%. On a combined basis, these 3 separate service offerings totaled approximately 27% of our total revenue. It is important to note that all of these offerings, while falling under one AT&T corporate umbrella, are managed and budgeted independently within their organization, giving us diversification within that corporate universe.

Energy Transfer affiliates was 26%, consisting of multiple projects. Fluor was 5%, comprised primarily of storm restoration work in the Caribbean. Comcast, Georgia Renewable Power and EQT Corporation were each at 3%. NextEra, North Buffalo Wind, Duke Energy and Verizon Communications Inc. were all at approximately 2%. Individual construction projects comprised 59% of our first quarter 2018 revenue, with master service agreements comprising 41%, and this mix reflects the trend over the past year or so of higher levels of large project activity.

At first quarter end 2018, our 18-month backlog was approximately $7.6 billion, a $464 million sequential increase over the fourth quarter of 2017 and a 33% increase compared to the same period last year.

Remember, as we have indicated for years, quarterly backlog amounts tend to be lumpy, as large contracts burn off each quarter and new large contract awards only come into backlog at a single point in time. That said, there are certain items of note related to our first quarter 2018 backlog. This marks the second consecutive quarter of record total company backlog as well as the second consecutive quarter of record segment level backlog in Communications, Oil & Gas and Power Generation and Industrial. In summary, our backlog trend serves as a testament to both the breadth and strength of our end market opportunities.

Communications backlog, at a record level of $3.8 billion, sequentially grew $192 million during the first quarter of 2018. This growth was primarily comprised of increased wireless project activity, and we believe significant telecommunications infrastructure initiatives, such as 5G, FirstNet and Verizon One Fiber, will continue to develop in size and scale, creating increased demand for our services over a multiyear period. In summary, our record level of backlog highlights the strength of our end markets, and we anticipate sizable growth opportunities in 2019 and beyond.

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 rates and no significant near-term maturities. We ended our first quarter with net debt, defined as total debt less cash, of $1.39 billion, and our quarter and book leverage ratio was 2.3x. As of quarter and, we had liquidity of approximately $555 million, clearly allowing us full financial flexibility to take advantage of the various growth opportunities our markets afford us.

As we indicated earlier, we ended the first quarter with higher-than-normal levels of working capital, invested in large Oil & Gas projects, as we work towards project completion. As these 2017 projects have expanded in scope due to delays, construction activity has stretched into 2018, creating increased levels of cost and excessive billings and retain-age amounts. This has caused an increase in our first quarter 2018 DSOs or accounts receivable days sales outstanding to 96 days, which is well above our stated DSO target range of the mid- to high-70s.

As we finalize these projects during 2018 and complete the process of ordinary course customer change order approval, working capital usage is expected to moderate during the second half of 2018, and we expect our DSO levels to return closer to our target range.

We continue to anticipate that given our current 2018 revenue levels and the expected second half 2018 normalization of working capital, we should be in position to generate a record level of cash flow from operations over the full year 2018 period. Inclusive of the impact of approximately $123 million and year-to-date share repurchases, we anticipate that year-end 2018 book leverage ratio will approximate 2x.

Reviewing our views on capital usage priorities, as we've indicated in the past, we continually evaluate the expected investment return associated with acquisitions and other strategic initiatives to grow operations as well as share repurchase opportunities and the use of funds for debt reduction. As a reminder, we currently have approximately $75 million in remaining open share repurchase authorization.

Regarding our spending on equipment, during the first quarter of 2018, we purchased approximately $17 million in net cash CapEx, defined as cash CapEx net of equipment disposals, and we procured an additional $26 million in equipment under capital leases. We continue with the expectation that for the full year 2018 period, we will acquire approximately $90 million in net cash CapEx, and we also expect to incur approximately $110 million to $130 million in equipment procured under capital leases.

Moving to our current 2018 guidance. We now expect full year 2018 revenue of approximately $6.9 billion, with adjusted EBITDA of approximately $700 million. We also expect adjusted diluted earnings per share to approximate $3.65, which equates to an approximately 6% increase or $0.20 per adjusted diluted share versus our prior expectation.

In summary, our guidance expectation for the balance of 2018 is very similar to our prior expectation, and the increased full year 2018 annual levels incorporate both the first quarter 2018 beat as well as a $0.05 per adjusted diluted share accretive impact of approximately $2.6 million in April year-to-date share repurchases.

Inclusive of the impact of 2.6 million shares repurchased through April, we expect that our weighted average share count for the second, third and fourth quarters of 2018 will approximate 80.3 million shares, with the full year 2018 weighted average share count approximating 80.8 million shares.

Our current estimate for full year 2018 interest expense is now $72 million, again, reflecting the impact of April 2018 year-to-date share repurchases. We currently anticipate full year 2018 depreciation and amortization expense will approximate 3% of revenue, with the dollar increase over 2018, primarily due to the annualization of expanded 2017 levels of capital expenditures and M&A activity.

Also, they touched upon earlier today regarding the newly enacted tax reform. We anticipate our full year 2018 GAAP and adjusted income tax rate will approximate 29.5%, down from an adjusted income tax rate of 39% in 2017. We currently estimate that second quarter 2018 revenue will approximate $1.8 billion with adjusted EBITDA of approximately $189 million or 10.6% of revenue and adjusted diluted earnings at approximately $1.03 per share.

This expectation incorporates a planned second quarter construction ramp on a 2018 large long-haul project as well as the substantial completion of a 2017 large long-haul project. In terms of some color -- additional color on the expected timing of our second half 2018 performance, based on our current guidance, the math indicates that our current 2018 expectation calls for a second half 2018 revenue growth rate over 2017 of slightly below 5%. Based on estimated project timing, we currently expect that our third quarter 2018 revenue growth rate will slightly exceed that level.

Regarding our second half 2018 adjusted EBITDA margin rate, based on our current guidance, the math indicates that our current 2018 expectation calls for second half 2018 adjusted EBITDA margin rate of slightly below 11%.

Based on our estimated project timing and seasonality, we currently expect that third quarter 2018 adjusted EBITDA margin rate will slightly exceed that level.

In summary, we had a strong start to 2018, and are pleased to be in position to raise our 2018 guidance expectation. As importantly, we strongly believe in the future growth opportunities our markets afford us, as multiyear infrastructure initiatives expand and accelerate into 2019 and beyond. And that concludes our prepared remarks.

We will now turn it back to the operator for Q&A. Operator?

(Operator Instructions) We will take our first question from Adam Thalhimer with Thompson, Davis.

First question I wanted to ask about the -- on the wireline side. Jose, you've been talking about large wireline projects for several quarters now. Are those now substantially underway?

So I think they've started. I don't think you've seen the full ramp effect of those projects to date, so we're still doing a lot of preliminary work in many of those areas where we were awarded projects. So I think we're going to see a ramp as 2018 develops. We're going to see increased activity in Q2. We'll see it in Q3. We'll see it in Q4, all the way into '19. So I think you're starting to see the beginning of it, but quite frankly, it's really just getting started.

And then Oil & Gas, can give us a little more color on what you're seeing in the shales? And I'm curious if there's any chance that you can continue to grow backlog in Q2.

It's a good question, right. I think in Q1, we did very well from a backlog perspective. We were up about $132 million in backlog. A lot of that came from smaller projects. We typically wouldn't expect to have backlog growth after the awards that we had in Q4, which were fairly large in nature. We're starting our big project in Q2, so we'll probably eat into backlog like we've historically done. We get to the peak level in backlog, we'll work it off, then we'll win another big project, which dramatically increases our backlog again. I think that trend is going to continue. That's kind of how that business works. So if we get started on time in Q2 on our large projects for 2018, which we kind of are on-time, and we expect that to happen, then I would assume backlog will drop a little bit in Q2 versus where it was in Q1, and then start building again, going into Q3, Q4.

We will take our next question from Alan Fleming with Citi.

Jose, maybe can -- I can start on Communication margin. I mean, you had -- you talked about facing some startup costs here in the first half, and you instead did double-digit margins there, 13%, I think, is the highest we've seen on a quarterly basis in a long time. So is there anything you'd call out there? I know you mentioned some storm work, but anything else you'd call out? And is there any reason to think that your margins can't kind of be at this level, going forward, as revenue continues to ramp into the second half of the year?

As we look at 2018, I don't think we're going to generate 13% margins throughout. Obviously, we were somewhat impacted by storm in Q1. It probably had about a 200 basis point impact to the quarter. One of our named customers was $50 million, $60 million of revenue for the quarter, which was predominantly storm. It wasn't all incremental, obviously, because we would have been doing other work with those same crews. But we do get a positive impact from a storm based on margins, so it probably represented 150 to 200 basis points in the quarter. We see the margin somewhat normalizing. I think our target for 2018 was about 11%, where we've historically talked about being north of 12% into 13%, which we've kind of approached in the back on a full year -- in the past on a full year basis. The markets' playing out really well. We will have some startup costs that we are currently, obviously, going through with all of the ramp we've got and activity around communications. We'll continue to have some of that, I think, over the course of the next couple of quarters. But there's no question that it's -- the way things are shaping up, we're going to have a fantastic run. Backlog was up $191 million in Communications. A lot of that was driven by wireless backlog growth, which we're very excited about. Unfortunately, I don't think we see that go into our numbers until late 2018, early 2019. But there's no question that the markets -- we got a lot of wind behind our sales and we're really excited about what's coming.

That's very helpful. And my follow-up maybe is on Oil & Gas margin. Can you still reach your EBITDA margin guidance there for the year of low 13% if you've -- you're starting the year at low 6%? Obviously, that implies a steep ramp. You mentioned construction starting on your big project in backlog here. How much of an impact can you quantify the impact from the cost reimbursable work in 1Q, and do you think you can still get to those levels as your new work starts to ramp?

So we do, Alan. The impact on the first quarter on the cost reimbursable was also a couple hundred basis points in margin, so margins would have been couple hundred basis points better on Oil & Gas business. We expect a significant ramp in margins in Q2, especially as we start the new 2018 work that we've got kicking off. We still have a little bit of Rover that we'll finish, which is at lower margins. But we think throughout the year, those margins will continue to grow. We're still shooting for that 12% to 13% range from a full year margin in Oil & Gas. We think it's achievable. And we think unlike last year, where we started with higher margins and margins kind of tailed off because of the cost reimbursable project, I think we'll see the inverse this year, where we're affected by the cost reimbursable project early. But as the other projects and a lot of our new work kicks in, margins will go up. I think it's really important to talk about our total business there, and if we look at our business, net of Rover over the last 1.5 years, the other projects have been performing extremely well from a margin perspective, which gives us a lot of confidence in our ability to talk about where we think margins will be long term in that business.

And we will take our next question from Tahira Afzal with KeyBanc Capital Markets.

I would say just based on what you're saying, and if you look at the telecom sector, obviously, a lot of growth ahead into 2019. It seems maybe Oil & Gas has had that transition there in 2018 with some Canada were coming back. Some Permian projects seem to be fairly large. So as you look out to 2019 and I know it's early, qualitatively speaking, it seems oil sector should see growth, and you should be able to maintain maybe organically a mid-single-digit growth number into 2019 on the revenue side?

We agree with that.

Got it. Okay. And is there a reason why we shouldn't think your -- directionally, your EBITDA margin as well should progress that as a consequence? You're anniversarying out some tough Oil & Gas margins this year, and your telecom utilization and transmission should get better into next year as well.

No question about it. And I think that's been a part of our story for a long time. We've been waiting for utilization to pick up in some of our businesses that haven't performed as well over the last couple of years. I think we're seeing that today. I think the margin upside is -- I think we're going to start to demonstrate that over the coming quarters. We're really excited about that. We think that's a big part of our story. So in summary, to your comments, I think we've got the opportunity to grow all of our segments in 19, including Oil & Gas with an improvement in margin almost across the board. I think it bodes really well for us going in the remaining part of '18, and more importantly, '19 and beyond.

Our next question comes from Noelle Dilts with Stifel.

So given just a strong growth profile you're seeing in both Oil & Gas markets and in telecom, could you just comment on what you're seeing in terms of pricing in terms -- are you seeing them meaningfully improve? And then also, if you could touch on labor and the availability of resources, are there any kind of points where you're seeing particular tightness?

Noelle, for us, it's all about utilization when it comes to pricing, right? So what we've been saying for, I think, the last 1.5 years or so is we've seen a good pricing environment. I don't know that we're going to see pricing dramatically uptick just based on the amount of resources that are available to work. With that said, to the extent that you can kind of plan out your work and get a higher utilization level that significantly impact margins, there's no question that the tightening environment is helpful, right, because I think everybody's relatively busy, so you will have some natural uptick in pricing. But I think the bigger impact, in effect, is really on utilization. So I think that bodes well for everything that we're doing across all of our segments. As it relates to labor, I think we're in good shape, especially in 2018. We have talked about in the past where we think in 2019 the Communications market's going to see some labor pressure. We think we've done a really good job of trying to prepare ourselves to get in front of that, so we've got a lot of initiatives going on in the company to prepare ourselves for future work, and to make sure we're staffed appropriately, and doing things today to prepare us rather than wait. And I think that's going to play for well for us and I think we'll be in a good spot, both in the short term and the long term relative to our ability to execute and perform in the work that we win.

Okay, great. And then you commented on this very large transmission project win after -- approval award after the quarter, could you comment or just give us a sense maybe, are we talking north of $500 million? And second, could you just expand a little bit on what you're seeing in terms of the opportunities in the transmission market? Is it more on these opportunities around these very big projects? Or is it kind of across the board generally accelerating bidding opportunity?

So we're really excited for the project. It's not a $500 million project. We wish it was. But for us, it's a big project. It's probably a couple hundred million, which would make it probably the second-largest project that we've won in our transmission business since we've been in it. So it's an exciting win for us. I think the bidding environment is great. There's a lot of projects of that size that are out there today. We've been talking a long time now about 2018 being a year where we build backlog. We think we're obviously starting to see that, and we think that's going to continue. I think it bodes very well for the next few years of the cycle of that business. I think there's a lot of transmission work out there. I think everybody in the space is going to do well. We're going to get our share, and we're pretty excited about getting back to both historical levels from a margin perspective, and quite frankly, probably from a revenue perspective, be larger than what we've historically been in that business.

We'll take our next question from Chad Dillard with Deutsche Bank.

So based on what you have ahead of you in Oil & Gas, do you think you can keep growing backlog year-over-year, I guess, in 2018? And what does that composition look like? I mean, will it be more of a Permian story? And like what's the mix between mainline versus midstream? And if it is more of a Permian story, I mean, how do we think about just like the ultimate margin potential, if you've taken in consideration, just like the level of contingencies you've booked there versus, let's say, the Marcellus and Utica basins?

So the short answer is yes. We do expect to come out of 2018 with similar backlog levels as we go into -- as we came into 2018 with. We say that because we've got tremendous visibility and confidence in what's happening in the market. I still think for the foreseeable future, and I'm talking 3 or 4 years, there's a lot of large project work. So I think over -- as far out as we can see, we're going to get ourselves some big projects on a year-in, year-out basis, and those projects will be augmented by a lot of the smaller work that we're doing, very similar to what's happening to us in 2018. So we've got one large project with lots of other mid -- small to mid-sized projects, and the mid-sized projects could be a couple hundred million dollars apiece. We expect that trend to continue in 2019, '20, '21 based on discussions that we're having with our customers. There's a lot of work out there. I know there's a lot of concerns about the long-term nature of what's happening in that market and how long the cycle is going to last. Quite frankly, and I know we sound like a broken record, but we have great visibility. We're in great dialogues with lots of customers about future projects. We don't see an end in sight to the long line projects and the long-haul project in the business, so we're very encouraged. We think activity levels today are as higher than they probably been since we've been in this business. The rig counts are up 151 rigs from this time last year, so there is a considerable incremental workload in the shales. We're seeing it. Quite frankly, we are in a position today where we're having to turn away work, and we're doing everything we can to serve our customers as best as we can. And again, I think we're in a great spot. I think that business has tremendous legs and good opportunities for growth, both in the short and long-term, and it's something we're really excited about.

That's helpful. And then switching over to Communications, can you speak to your expectations of revenue contribution in 2018 for wireless, wireline as well as DIRECTV? And then also, if you can comment on FirstNet, and how you think about that contribution and when you expect that to hit peak run rate.

Yes. So from a revenue perspective, we expect our Comm business to be up double digits in '18 versus '17. Not much different than what we said in the past. We expected DIRECTV business to decline in '18, offset by a lot of growth in both our wireline, primarily, and then our wireless business. We think the wireless is more of a '19 story from a FirstNet perspective. We saw incredible order flowing in the first quarter. I think order flow more than tripled in FirstNet from Q1 to where we are today. But quite frankly, we've generated very little revenue associated with FirstNet and we won't see much of that revenue until the second half of this year. The projects are underway, but the construct-ability of those projects take time. So the big revenues won't hit until third or fourth quarter. We'll continue to see a ramp going into '19, so I think '19 is a dramatically bigger year for that than '18 is, and it probably will continue to grow through there. I don't think '19 is a peak either. I think the peak's going to come out in '20 or '21. So I think we're at the very early stages of what we're seeing in FirstNet. The good side of that is we've got orders in hand. We're seeing that order flow, customers' committed. There's some deadlines to make, so it's in a good place. And we feel the same way about 5G. I think even if you look at the T-Mobile, Sprint, just the way they've talked about their deal, I think when you think about the importance that they both put on 5G and the network, I think all the carriers are in the same spot. They've got to upgrade their networks to meet the growing needs of their customers. That bodes extremely well for companies like ours and between Verizon and AT&T and what Sprint and T-Mobile are going to have to do. It's just a fantastic business to be in, and one where we think we're going to have really solid growth opportunities.

We'll take our next question from Matt Duncan with Stephens.

So sticking with Comms, and thinking about the backlog there, Jose, you've had 5 consecutive quarters of backlog growth. You're up 35% in Comms backlog over that time frame, and that's only an 18-month backlog and you're talking about a peak that's, let's call, it at least 3 years away before we get there. So is it reasonable to assume, given the ramp you're expecting in 5G and in FirstNet, that you would see backlog continue to grow there? And if so, what's the reasonable backlog level you could exit this year with in that business?

Matt, I don't know that we've run the math to that detail. I think you're right. Our expectation is backlog is going to continue to grow again. We always talk about the lumpiness in backlog, and it all depends on what happens from an order flow. It's a lot easier to manage within our Comm space because so much of it is under long-term maintenance agreements. So we do expect growth, continued growth through the balance of the year. I don't know that we're going to peg a number to it, but obviously, the number is a lot higher now than it's been over the course of the last 18 months, a lot of positive developments there. I think, obviously, that's going to be somewhat driven with what happened between T-Mobile and Sprint. The more clarity we get around that deal, I think there's going to be tons of activity and opportunities around that, which would obviously help -- which is going to help backlog growth at some point.

Okay. And then my second question is just on capital allocation. You've bought back 2.6 million shares year-to-date. The stock still seems fairly inexpensive. Is that something that you see yourselves continuing to do from this point forward? Are there acquisitions that you feel like might get over the finish line here in the next, call it, basically between now and the end of the year? Just what -- how do you balance out those 2 with each other right now?

First, we've been all about trying to take advantage of the opportunities that the market affords us, right, from an organic perspective, so it's about executing organically. We have tremendous organic growth opportunities across all of our businesses. With that said, we're always looking at ways to augment and improve our business, both geographically and penetrating customers deeper. With that said, and I think from a long-term perspective, we haven't been big buyers of stock. We've been somewhat opportunistic in buying opportunities. Last time we bought the stock was in the teens. A while ago, that worked out well for us. When we look at our stock price today, we obviously think we're trading at significant value, if not, we wouldn't be buying our stock. Going into today's call, we're trading at about 7x earnings. The reality is that we've got a lot of private deals in our space being done between 8 to 10x, so we're trading at a pretty significant discount to what's happening in the private sector with companies that I don't think are anywhere near as diversified and as good as MasTec. So today, we're a believer in our story. We're a believer in our stock, so I think you can expect us to continue.

And we will take our next question from Alex Rygiel with B. Riley FBR.

Sorry, if this was asked already, but can you expand a little bit upon what you're doing down in Puerto Rico, what the contribution was in the first quarter and what the future opportunities are over the next handful of quarters or years?

Yes, so in Puerto Rico, we've been there for a long time. Obviously, the storm, dealt with the significant blow to Puerto Rico last year. We've done a little bit of everything. We did some telecom work. Late into the fourth quarter, early first quarter, we supported Puerto Rico on the power side of the business, so we had a lot of distribution and transmission crews doing storm restoration work that kind of ended towards the end of the first quarter. With that said, there are significant opportunities for long-term growth in Puerto Rico. There's a number of RFPs that we participated in over the last couple of months that we feel somewhat confident about. The opportunity there is going to be very large for a very long time, so there's going to be billions of dollars invested in that infrastructure. I think what we've seen is the first phase of restoration happen. Lights are on, and I say that somewhat lights are on most of the time. But they've struggled, and they've got to invest a lot of money in their network to make it reliable. So there's going to be significant long-term opportunities there. I think that what we were able to do there for the period of time we were there demonstrated our ability to gear up and perform. So I think that bodes well for us. I believe, yesterday, the FCC talked about an additional $1 billion investment into the telecom infrastructure of Puerto Rico, which also bodes well for us. So we don't have -- if we talked about our numbers for the balance of 2018, I don't think we've got a lot built in for Puerto Rico because a lot of it is in flux, but quite frankly, there are significant opportunities there. There's also significant opportunities in the Virgin Islands, as they continue to recover from a lot from the same natural disaster and a lot of the issues that they've had. So this is a somewhat unique situation in that we've got some benefit from the short-term nature of the storm. But quite frankly, there's tons of opportunities, I think, over a 2 or 3-year period to stay actively engaged in those markets, helping them recover.

And turning to wireless, where is the pinch point going to be in the shortage of labor and wireless in 2019? In the past, it was tower climbers, but what it's going to be in the future with 5G?

It's going to be more broad-based, Alex. I think you're still going to have a tower climbing issue because every carrier is going to pretty much have to touch every existing tower that they're on. But you're also going to have the incremental need of all of the small cell initiatives that they're doing, so these millions of touch points that we're going to have across the network. And those are somewhat of a different skill set, and I think we're already planning on how to best execute around that in terms of personnel. But I think between that and the fiber ramp that we're going to see in the coming years, I think that's where there will be a bottleneck in Communications.

And we'll take our next question from Brent Thielman with D.A. Davidson.

Jose, on Oil & Gas, the discussions with customers for jobs, seems to continue to extend out. I think you're now saying preliminary discussions out to 2022. Obviously, capacity in the market's been part of that focus there, but it seems to me, from what you're saying, that some sort of new jobs that have been on the sidelines now are looking more realistic or economical to develop, is that more that -- more what's going on here?

Different customers have different needs, so it's not a broad brush to answer because there's -- I'd call it, there's projects that fall in different buckets. But across the board, we're seeing significant activity from a number of different customers for different reasons. Some might be to power power plants, some may be to offset their transportation costs from truck and rail. Others maybe just a necessity of where a product is being extracted versus where they want it to go. All in, we're just seeing an enormous amount of projects that are being planned, that are being worked on from reputable customers that we think have a high likelihood of output. When you're talking about a project that's 3 years out, there's obviously some risk that goes with that. So to the extent that you can position yourself with customers that have significant track record and we know have spent a lot of money in the past. I think it bodes better to the long-term viability and success of those projects, and we're seeing that. So our major customers are talking about major jobs that they have in the works. The majority of them aren't publicly announced. They're not out there talking about them, so we feel highly encouraged with what's happening in the market and the long-term viability of that business.

Okay. And then the Power and Industrial backlog looks solid in terms of visibility for that segment. But maybe fair to say it's less of a focus for investors in MasTec right now. Can you just talk about the projects in that backlog, the complexity of those jobs, and I guess, anything in particular to give us more comfort around kind of margin profile as you look to execute on that?

Look, it's a business that for a couple years, underperformed relative to where we're expecting or we want it to be. Business is performing very well. I think we had an excellent margin year last year. We hope to capitalize that again in 2018. Backlog is solid. Growth opportunities are solid. We've talked about the larger word we got from Excel a while back. That was over a gigabit of new renewable construction. Some of those projects have more recently been approved. Those projects start anywhere from 2018 all the way into 2020, so that was one where we had significant visibility for a long time. Only the current portion of those projects that are going to be built in the next 18 months are in current backlog, so we've got greater backlog in that. That's going to kind of just naturally roll into backlog, as some of those projects stay closer to fruition. The renewable market's extremely hot right now. There's a lot of projects that are ongoing, and again, we're pretty bullish about where we are in the life cycle of that business.

We'll take our next question from Jamie Cook with Credit Suisse.

I guess, just 2 clarifications, given the time. You beat the first quarter numbers, it looks like you're raising ET revenues, and maybe even power gen to some degree. Is -- just to be clear, is Oil & Gas growth, is it still forecast to be sort of up mid-single-digit off of the normalized $3 billion level? And then I guess just a longer-term question for you, Jose, understanding the prospects in Oil & Gas are very robust over the next several years, and you're not concerned about the peak, but to what degree do you want to -- to what degree are you concerned that this business could get too big as a percentage of your portfolio, and given the lumpiness, so that you want to sort of manage this business not to become too big of the percent of the portfolio? So I'm just wondering how you think about that. And in that context, should we think about Oil & Gas over the next couple of years, assuming markets are okay, is it $3 billion-ish plus or take revenue business?

So a couple of questions there, Jamie, first, yes, our anticipation is we're going to grow single digits from the normalized run rate, so we talked about the normalized run rate last year being about $3 billion. We expect to grow mid-single digits based off that number in 2018. We think that, that is -- we have no doubt in our mind that we think that's a sustainable number over a long term, and I'll get into that in a second. And I think what's going to naturally happen in our business, and again, so 2 things. One, I don't think we're afraid about the level of pipeline activity that we have in our business because it's been a very good and solid performing business for us. But I think just naturally, as our Comm business continues to grow with all the opportunities that we have there, you're going to see pipeline shrink as a total percentage of revenue because I don't think it'll outpace the growth of what the Communications business is going to do. With that said, when you think a little longer term about pipelines, I think there's 2 markets that we've talked to, I think ad nauseam about. And I don't think they've impacted us the way we would have hoped to or expected at this point, but we're very confident that they will over time. So I think the U.S. market's going to be strong. I think the U.S. market's going to be strong in perpetuity. The amount, again, rig counts are way up. I think when you look at world production and the amount and the percentage that the U.S. is growing into that world production, so as other parts of the world decrease production based on the age of their infrastructure, the U.S. is building production. That, in and of itself, is going to create long-term demands for pipelines, especially as the cost differentials of where those products need to be delivered changes. I think that's very important. We've seen in the last couple years, obviously, a significant growth area, be of pipelines moving into Mexico on the south side just because it makes a lot of sense. We expect that to continue for a long time. And then I think there's 2 markets that in the coming years are going to have a viable impact on our pipeline business. One is Canada, as that market comes back over time. We're seeing tremendous activity in Canada from a bid perspective right now. Prices are still low, so we're not chasing anything there. But when I look 2, 3 years out into Canada, think that's going to be a sizable portion of our business like it once was, where today, it's somewhat a very small piece of our business. And then you've got Mexico, and I think Mexico obviously was heavily impacted by the decline of oil prices and what it meant for a Pemex. They've kind of reshaped how they're looking at their long-term energy needs. They're doing a lot more public-private type deals. I think we're going to see a significant ramp to that. I think the opportunity for us there is quite large, so I've got a lot of confidence that even with a slowdown in the U.S., I think those markets will help us continue to grow the business and offset any potential declines in the U.S. market. With that said, we don't expect any declines in the U.S. market, so if the U.S. market performs that way we expect it to for the coming years, and Canada and Mexico play out, even to a portion of where we think it could, that could bode really well for our total pipeline business.

We'll take our next question from Justin Hauke with Robert W. Baird.

I've got 2 here. So maybe the first one, George, I appreciate you talking about the cash flow. That was helpful. I was just hoping to maybe understand a little bit better the nature of the increase in the unbilled, especially since it sounds like the work for your one large project has been under a reimbursables cost structure, at least, at this point. So I'm just wondering why that has continued to build and then the visibility on the timing of the collection for that, if you could give a little more color.

Yes, so I'll answer it. It's Jose. So I think when you look at it, it's largely been driven by 2 main projects, 2 of our larger pipeline projects. I think even though one of them is cost reimbursable in nature, we still got to go through an approval process of those invoices. So if you think about it, these are projects that have somewhat been hampered with permitting delays. The projects have taken a lot longer than what we expected or customer expected. The contracts have grown in value above and beyond what they were initially were. So as you get to the end, quite frankly, those invoices customarily -- I think in a normal process have to get approved. That approval process takes longer than what you have in your initial bid estimates and contracts. And I also think it's important to note that things are always flowing in and out of that. So things flow in. They get approved. As it builds, more stuff gets built in. So the number is growing. Obviously, it's affected our DSOs in some way. We're highly confident that in the coming months, that's going to kind of clean itself out as we conclude those projects, and we begin our new works. So there's no question that those are running slightly higher for us than what they would normally run or what we expect. But we also think they'll take care of themselves in the next 2 to 3 months.

That's helpful. I guess, the second question, just wanted to understand, on FirstNet, it sounds like the revenue contribution hasn't really materially impacted you yet. But I was just curious on the backlog contribution. And then from here, I guess, it's been my understanding that, that would be more of a steady flow of booking, as you continue to roll forward your 18-month window of looking at that. Are we at the level where you're kind of booking it at a peak here? Or is there still more bookings to come as that program ramps up?

So as we said earlier, it didn't have a big impact in Q1. We saw order activity related to FirstNet more or less triple in the first quarter from where it was. We expect it to continue. Again, the last dates didn't knock in until the fourth quarter, so I think you still got a lot of work going into building out the plans. When you look at the rollout, this is a long-term project. This isn't a short-term project. This is going to be years and years of build-out, and I think you're going to see it grow in peak. I don't think '18's, by any stretch of imagination, the peak. And I quite frankly, I don't think '19 is the peak either. So I think we're going to continue to see backlog growth in order activity growth from FirstNet for the next 1.5 years.

And we have no additional for phone questions at this time. I would now like to turn the conference back to Jose Mas for any additional or closing remarks.

Again, I just want to thank everybody for participating today, and we look forward to updating you in our second quarter call in a couple months. Thank you.

Ladies and gentlemen, this does conclude today's call, and we thank you for your participation. You may now disconnect.