MasTec, Inc. (MTZ)

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MasTec (MTZ)

Q4 2010 Earnings Call

February 24, 2011 9:00 am ET

Executives

J. Lewis - Vice President of Investor Relations

Jose Mas - Chief Executive Officer and Director

C. Campbell - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Analysts

Noelle Dilts - Stifel, Nicolaus & Co., Inc.

Theodore O'Neill - Wunderlich Securities Inc.

Alexander Rygiel - FBR Capital Markets & Co.

Vikram Malhotra - Morgan Stanley

Veny Aleksandrov - Pritchard Capital Partners, LLC

Tahira Afzal - KeyBanc Capital Markets Inc.

Guo Shou

Adam Thalhimer - BB&T Capital Markets

Chase Becker - Crédit Suisse AG

William Bremer - Maxim Group LLC

Liam Burke - Janney Montgomery Scott LLC

Presentation

Operator

Welcome to MasTec's Fourth Quarter 2010 Earnings Conference Call, initially broadcast on February 24, 2011. [Operator Instructions] At this time, I'd like to turn the call over to Marc Lewis, MasTec Vice President of Investor Relations. Marc?

J. Lewis

Thank you, Audra. Good morning, everyone, and welcome to MasTec's Fourth Quarter 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 incorrect, actual results may differ significantly from results expressed or implied in these communications.

In addition, we may make use of 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 financial measure can be found in our earnings press release or on the Investor Relations section of our website located at MasTec.com, which has recently been redesigned and updated with a significant amount of new information for our shareholders and customers.

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

We have other great things to talk about today, so I'll now like to turn the call over to Jose. Jose?

Jose Mas

Thank you, Marc. Good morning, and welcome to MasTec's Fourth Quarter and 2010 Year-end Call. In today's call, I would like to cover some of the year's highlights, and layout our financial and operational objectives for 2011. I would also like to make some observations about the outlook for the markets we serve.

First, some fourth quarter highlights. Revenue for the quarter was $731 million, or 47% increase, over the prior-year fourth quarter. Gross margins increased to 17.3% versus 15% in last year's fourth quarter. EBITDA increased to $88.1 million, a 75% increase over last year's fourth quarter. Pretax income was 9% of revenues versus 5.2% in last year's fourth quarter. Earnings per share was $0.44 versus $0.22 or double last year. Cash flow from operations was $117 million for the quarter versus $39 million in last year's fourth quarter, and organic revenue growth for the fourth quarter was 36%. We had another fantastic quarter. A number of our businesses performed better than expected, providing a strong finish to a great year.

Now I'd like to cover some full year highlights. Revenue for the year was $2.3 billion, a 42% increase over 2009. Gross margins improved 80 basis points year-over-year. Pretax margins improved 180 basis points year-over-year. EBITDA margins improved 100 basis points year-over-year, and EBITDA totaled $241 million, a 57% increase over 2009. Cash flow from operations was $218 million versus $124 million in 2009. And finally, organic revenue growth was 24% for the full year.

We performed extremely well in both the fourth quarter and for the full year, as evidenced by our financial and performance metrics, which show almost across-the-board improvement. Yet, I believe our greatest success has been the way we have positioned MasTec to take advantage of significant growth opportunities in the markets we serve, markets which stand to benefit from a much improved economic outlook for 2011 and beyond.

We worked hard over the last couple of years to diversify our business and to enter those markets we felt had significant long-term growth and margin potential. While we saw some fruits of our labor in 2010, even greater opportunities lie ahead, as a number of the industries we serve are expected to be the leading contributors to our nation's economic growth. For example, we believe the demand for wireless data will continue to grow, requiring carriers to make significant investments in their infrastructure for years to come.

We expect that natural gas will become an even greater source of energy for our country, and that our nation's transmission infrastructure will need to be both updated and expanded to meet our growing energy needs. MasTec is well positioned within each of these markets and will remain one of the leading providers of infrastructure services as our economy continues to grow.

Now I would like to discuss MasTec's specific performance in some of the markets we serve. Our communications revenue grew by more than 40% to $367 million for the quarter compared to $260 million in last year's fourth quarter, driven primarily by our Install to the Home and wireless businesses. In our Install to the Home business, revenue from DIRECTV was up nearly 30% for the quarter at approximately $155 million. For the year, revenue from DIRECTV increased by 15% to $558 million versus $484 million for the previous year. It is important to note that all of that growth was organic.

Our Installation business had a great year, and we were surprised with the strength of the market and activity levels. For 2011, we are expecting single-digit growth. With that said, the first quarter is already shaping up a little bit better than expected in this market.

Our Wireline business showed growth in the fourth quarter for the first time in two years. While activities have been depressed for quite a while, we are seeing stabilization in maintenance and considerable opportunities related to broadband stimulus. We actually began construction on broadband stimulus-funded projects in the fourth quarter and have now won over $60 million in broadband-funded projects. We have a number of opportunities outstanding and believe this will be a source of growth for the next couple of years.

Shifting to Wireless. This has been an area where we have really excelled. We saw sequential growth of nearly 20% and year-over-year growth in the fourth quarter of over 100%. For the year, Wireless revenues doubled, and the outlook remains very strong. In 2011, we will begin to see the industry accelerate its 4G or LTE plans, and we expect carriers to significantly increase their build plans over the next three to five years. We are making strides in growing our business with both existing and new customers.

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