MasTec, Inc. (MTZ)

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MasTec, Inc. (MTZ)

Q3 2010 Earnings Conference Call

November 4, 2010 9:00 AM ET

Executives

Marc Lewis – VP, IR

Jose Mas – President and CEO

Bob Campbell – EVP and CFO

Analysts

Gosho (ph) – Barclays

Alex Rygiel – FBR Capital Markets

Vance Edelson – Morgan Stanley

Tahira Afzal – KeyBanc

William Bremer – Maxim Group

Theodore O’Neill – Wunderlich Securities

Noelle Dilts – Stifel Nicolaus

Liam Burke – Janney Capital Markets

John Rodgers – DA Davidson

Veny Aleksandrov – Pritchard Capital Partners

Presentation

Operator

Please stand by. Welcome to MasTec’s Q3 2010 Earnings Conference Call, initially broadcast on November 4th, 2010. 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?


Marc Lewis

Thank you, Kevin, and good morning everyone. Welcome to MasTec’s Q3 earnings conference call. The following statement is made pursuant to the Safe Harbor for Forward-Looking Statements described in the Private Securities Litigation Reform Act of 1995. In these communications we may make certain statements that are forward-looking such 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 the initial broadcast of this conference call, and the company will make no effort 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 correct, actual results may differ significantly from those expressed or implied in these communications.

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 press release or on the investor relations section of our website located at MasTec.com.

With us today we have Jose Mas, our Chief Executive Officer, and Bob Campbell, our Executive Vice President and Chief Financial Officer. At the (inaudible) of the call we open with remarks and announcements by Jose followed by a financial review from Bob. These discussions will be followed by a Q&A period and we’ll restrict that part of the call to about 20 minutes.

We have a lot of great things to talk about today so I’ll now turn the call over to Jose. Jose?

Jose Mas

Thank you, Mark. Good morning, and welcome to MasTec’s Q3 call. Today I will be reviewing Q3 results and providing my outlook for the markets we serve. Revenue for the quarter was $632 million, a 59% increase over the prior year’s quarter, and up 28% sequentially. EBIDTA increased to $73 million, an 88% increase over the prior year’s Q3. Net income increased to $30 million, a 39% increase over the prior year’s Q3. Gross margins increased to 16.4%, an improvement of 80 basis points year over year and 70 basis points sequentially.

We achieved pretax margins of 8% versus 5.6% in last year’s Q3, and 5% in the previous quarter. Cash flow from operations was $72.4 million, a 128% increase from the previous Q3. Our cash balances nearly doubled. Earnings per share was $0.35 for the quarter, versus $0.27 in last year’s Q3, a 30% increase. And finally, organic growth accounted for 39% of the revenue increase driven by strong year over year growth in our wireless, transmission substation, natural gas, renewable, and install to the home markets.

In summary, we had a fantastic quarter. We executed at a very high level, dramatically improved a number of key financial metrics and more importantly we continued to position the company as a leader in our markets with substantial opportunities for future growth. While our results speak for themselves, I would like to emphasize that these results were achieved during a difficult market and competitive landscape. We believe that the diverse markets we serve are improving and that over time we will benefit further from the supply/demand curve of our business.

While the Precision Pipeline acquisition had a positive effect on our results, our Q3 success was in large part driven by organic growth. Pre-acquisition, we either doubled or nearly doubled the work we did for our wireless, central office, transmission, and natural gas customers. Work related to our install to the home and renewable customers grew by over 20% on a year over year basis. Our success in the quarter was driven by solid performance almost across the board, and despite a slower ramp on the construction of the Ruby Pipeline.

If you recall earlier this year we expected substantially all of the revenue from the Ruby Pipeline project to be divided between the Q3 and Q4 of 2010. While we generated approximately $40 million of revenue associated with the Ruby Pipeline in the Q3, the project did not fully ramp up until October. We now expect the majority of revenues from this project to be recognized in the Q4 of 2010 and the Q1 of 2011.

Before I cover some industry specifics, I’d like to once again comment on the strength of our diversity. MasTec today is a very different company than that of a few years ago. We are now positioned to participate and compete in what we believe will be some of the most opportunistic markets in our economy. As we look ahead we expect to be an active participant in deploying the infrastructure that ultimately becomes our country’s energy independence strategy. By participating in the natural gas, wind, solar, biomass, transmission and power generation markets, we will be an active player in the energy sector. Coupled with the opportunities before us in wireless and broadband, MasTec has never been better positioned.

Now I would like to cover some industry specifics. Our communications revenues were $348 million for the Q3 of 2010 compared with $256 million last year, and $280 million last quarter. Within communication, our revenue from DirecTV was approximately $156 million, a 28% year over year increase and a 23% sequential increase. We expect strong year over year growth for the balance of the year. We also recently extended our contract with DirecTV for an addition four years through late 2014.

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