MasTec, Inc. (MTZ)

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MasTec (MTZ)

Q2 2011 Earnings Call

August 04, 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.

Alexander Rygiel - FBR Capital Markets & Co.

Veny Aleksandrov - Pritchard Capital Partners, LLC

Tahira Afzal - KeyBanc Capital Markets Inc.

Adam Thalhimer - BB&T Capital Markets

Peter Chang - Crédit Suisse AG

John Rogers - D.A. Davidson & Co.

William Bremer - Maxim Group LLC

Andy Kaplowitz - Barclays Capital

Theodore O'Neil - Wunderlich Securities Inc.

Liam Burke - Janney Montgomery Scott LLC

Presentation

Operator

Welcome to today's MasTec Second Quarter 2011 Earnings Conference Call, initially broadcast on August 4, 2011. 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?

J. Lewis

Thanks, Melody. Good morning, everyone, and welcome to MasTec's Second 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 Securities and Exchange Commission. 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 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 from yesterday 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. The format of the call will be opening remarks and analysis 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. Once again, we had another great quarter, so we have a lot of good things to talk about today, so I'll now turn the call over to Jose, so we can get started. Jose?

Jose Mas

Thank you, Marc. Good morning, and welcome to MasTec's 2011 Second Quarter Call. Today, I will be reviewing our second quarter results, as well as providing my outlook for the markets we serve. First, some second quarter highlights. Before I start, it should be noted that during the quarter, we had a $29 million pre-tax gain running through the other income line. That's $0.20 per diluted share after-tax, related to the April 29 exercise of our option to buy the remaining 2/3 of EC Source that we do not already own. My comments today, exclude this noncash gain.

Having said that, revenue for the quarter was $751 million, that's a $256 million increase over the prior year's quarter, of which $218 million or 85% was organic. EBITDA was $71 million, a 53% increase over the prior year's quarter. Earnings per share was $0.31 versus $0.18 in last year's second quarter, a 72% increase. Net income was up $12.2 million, an 83% increase and backlog was up nicely to $2.9 billion and the bid and project pipeline remained strong. I'll cover that later.

In short, we had a very good second quarter. Our 52% revenue growth was broad-based, with everyone of our markets up double digits with the exception of renewables, which was down. Historically, we have enjoyed an increase in business in the third quarter. This year, that spike happened earlier than expected, with a significant ramp up late in the second quarter. That ramp up allowed us to beat previous guidance with revenues exceeding guidance by $75 million or 11%. That ramp up, while a testament to our diversified business model and an example of our future growth potential, had an impact on both working capital and costs. For example, during the second quarter, our team member count actually increased by almost 2,400 people. While we have been in a very challenging market environment and we expect it to be a little choppy, there are significant signs of improvement and demand for our services is strong. We have seen, over the course of the last few months, a meaningful increase in large project opportunities affecting a number of our markets.

Our customers' confidence level for 2012 are increasing, and we expect there to be a greater number of opportunities compared to the last few years. Now I would like to cover some industry specifics.

Our communications revenue grew 40% over last year's second quarter, to $393 million. This increase was driven by double-digit growth in all of our communication markets, including install-to-the-home, wireline and wireless. In our install-to-the-home business, revenue from DIRECTV was up 23% for the quarter. This was better than we expected, and we anticipate a strong finish to the year with the conclusion of the NFL lockout.

Late in the second quarter, we acquired Halsted, a service provider for DIRECTV covering New York and a number of other states in the Northeast. This is our first geographic expansion with this customer since 2006. We have fully integrated this acquisition into our existing DIRECTV business and feel we can make significant improvements in both their service delivery and financial performance. Halsted was operating in very low margins, and while we don't expect much, if any contribution for 2011, we do expect significant margin enhancements in 2012. Our wireline business experienced growth for the third consecutive quarter, driven by broadband stimulus funded projects. Awards have continued to increase and the pipeline of project remained strong. We are currently bidding on over $150 million of projects, and we continue to believe this will be a source of growth for the next few years.

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