J. Marc Lewis - MasTec, Inc. José Ramón Mas - MasTec, Inc. George L. Pita - MasTec, Inc..

Alex J. Rygiel - FBR Capital Markets & Co. Matt Duncan - Stephens, Inc. Matt Tucker - KeyBanc Capital Markets, Inc. Noelle Dilts - Stifel, Nicolaus & Co., Inc. Daniel Mannes - Avondale Partners LLC Andrew Kaplowitz - Citigroup Global Markets, Inc. (Broker) Jason A. Wangler - Wunderlich Securities, Inc. Robert Joseph Burleson - Canaccord Genuity, Inc.

Andrew John Wittmann - Robert W. Baird & Co., Inc. (Broker) Chad Dillard - Deutsche Bank Securities, Inc. Francis J. Okoniewski - Friess Associates LLC.

Welcome to MasTec's Third Quarter 2016 Earnings Conference Call initially broadcast on November 4, 2016. 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?.

Thanks, Tracy, and good morning, everyone. Welcome to MasTec's third quarter 2016 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 reflect the company's expectations on the day of the initial broadcast of this 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 risk or uncertainties materialize or should any of our underlying assumptions prove incorrect, actual results may differ significantly from results expressed or implied in this communication.

In today's remarks by management, we will be discussing continuing operations, 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 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 release, our 10-Q, our 10-K, or on the Investor and News sections of our website at mastec.com. With us today, we have José Mas, our CEO; and George Pita, our EVP and Chief Financial Officer.

The format of the call will be opening remarks and analysis by José, followed by a financial review from George. The discussions will be followed by a Q&A period and we expect the call to last about 60 minutes. We had a great quarter and have a lot of good things to talk about today. So, I'd now turn the call over to José.

José?.

Thank you, Marc. Good morning and welcome to MasTec's 2016 third quarter call. Today, I will be reviewing our third quarter results as well as providing my outlook for the markets we served. First, some third quarter highlights. Revenue for the quarter was $1.586 billion, an increase of 43% over last year's third quarter.

Adjusted EBITDA was $165 million, an increase of 81% over the prior year's third quarter. Adjusted EBITDA margins were 10.4%, a 220 basis point improvement over last year. Adjusted diluted earnings per share were $0.81, an increase of 212% over last year's third quarter. And cash flow from operations was $99 million.

In summary, we had an excellent quarter. In fact, the third quarter was the best quarter in the company's history. Third quarter revenue, EBITDA, net income, and EPS were all at record levels.

I think it's also important to note that all of our growth, including our 43% revenue growth, was all organic, as we haven't made an acquisition in over two years. With our updated guidance announced today, we now also expect record revenue and EBITDA for full year 2016.

More importantly, we're excited and bullish about our future growth opportunities. Today, we'll cover our financial performance. But quite frankly, our greatest success has been our ability to improve our competitive position across all of our end markets. I believe the value of our brand has never been stronger.

I think the financial performance we are discussing today is a testament to that. But more importantly, it's our brand recognition and reputation that will continue to provide us with the growing opportunities across all of our markets.

With that said, and although our results were at record levels, our results aren't perfect, and they can and should improve. Our Communications business enjoyed its second consecutive quarter of 20% plus growth. In that business, head count was up nearly 2,000 employees year-over-year.

This increase in head count created production inefficiencies that negatively impacted margins. While those margins were up slightly year-over-year, they were below our expectations. Our Electric Transmission business continued to improve.

And while we're confident we'll see continued improvement in earnings, they were still slightly negative in the quarter. And even in our Oil and Gas business, which overall performed very well, we had areas that could have been better. Our Canadian Oil and Gas business was down approximately 40% compared to last year.

And on our large oil and gas project in North Dakota, we faced production issues related to the protest on the Dakota Access pipeline. Now, I'd like to cover some industry specifics. Our Communications revenue for the quarter was $624 million, versus $513 million last year, up 22%.

The increase in revenues was driven by strong increases across all of our markets. Our Wireline business was up 24%. Our Installation business was up 19%, and our Wireless business was up 23%. We expect continued growth in the fourth quarter in the mid-to-high-single-digit range, with full year Communications revenue growth in the mid-teens.

As I mentioned earlier, while Communications margins were up on a year-over-year basis, they have been negatively affected by the number of new team members we've added to meet our growth opportunities. While we'll continue to see some drag in the fourth quarter related to our new hires, performance and margin should improve in the coming quarters.

Demand in our installation and wireline services remains strong. We continue to be bullish about continued future growth opportunities related to gigabit expansion. And we believe we're very early in what will be a strong long-term cycle.

While our Wireless business has shown nice growth year-to-date, we continue to be more excited about our future growth opportunities. It is becoming clear that carriers are looking for ways to dramatically increase network speeds.

Across the board, we expect carriers like Verizon, AT&T, Sprint and T-Mobile to make significant investments in the rollout of 5G. We expect this to be a significant opportunity for us in the years to come. We also believe that FirstNet is closer to becoming a reality.

FirstNet is a planned nationwide public safety broadband network that is reportedly now down to two potential carriers. Should FirstNet be awarded, it would potentially be an incremental nationwide network, creating significant demand and opportunity for our industry.

Moving to our Power Generation and Industrial segment; revenue was $124 million for the quarter, versus $115 million in the prior year. We're currently participating in a number of opportunities that are larger and broader than what we previously experienced.

Revenue in our Electrical Transmission business was $102 million, versus $76 million in last year's third quarter. While we continue to see improvement, we continue to struggle on a large project, as we've mentioned on previous calls.

As we continue to work this project off, which we expected to be completed in this, the fourth quarter, our remaining business is performing at much better levels. And we expect continued improvements through the balance of the year and into next. We've worked hard at rightsizing our business.

And I'm confident we're well on our way to help making this a positive contributor to MasTec as we work to get it back to historical levels. We continue to win a number of mid-sized projects that position us for a much better 2017.

Our Oil and Gas pipeline segment had revenues of $736 million for the third quarter, compared to revenues of $407 million in last year's third quarter, or an 81% year-over-year increase. EBITDA margin for this segment was 16%, versus 12.5% in last year's third quarter.

Oil and Gas backlog was at just over $1.1 billion versus $933 million last year, but down sequentially from $1.6 billion. As a reminder, timing of large awards will have a significant impact on quarterly backlog. As we have previously said, and reconfirm today, we expect record levels of pipeline backlog by year-end.

This backlog will include recently awarded spreads on the Diamond Pipeline and the Rover Pipeline. The Rover Pipeline award, approximately 600 miles, will represent the largest project in our company's history. I continue to be surprised by the level of visibility in this segment for years to come.

We're in great shape relative to backlog in 2017 and our visibility for 2018 is excellent. We continue to focus on Mexico as a growth market. And we're pursuing a number of large opportunities.

While the sales cycle has been longer than expected and commodity prices have affected their ability to develop projects in the short-term, we believe the market fundamentals are there to make this a sizable opportunity for us over the long-term. To recap, we're having an excellent 2016.

We expect 2016 to be a record year and we're encouraged about the prospects for our business going forward. Our presence in communications, oil and gas, high voltage electrical transmission, and power generation afford us strong opportunities for future growth.

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's because of them and the opportunities that they've created that I'm so bullish about our future. I'll now turn the call over to George for our financial review.

George?.

Energy Transfer affiliates was 35%, AT&T revenue derived from wireless and wireline services was approximately 17%, and install-to-the-home, satellite and security services were approximately 13%. On a combined basis, these four separate service offerings totaled approximately 30% 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 that organization giving us diversification within that corporate universe.

(21:36) pipeline and Avangrid were each at 3%, Duke Energy, Trans-Pecos Pipeline and Northern States Power were each of 2%, and NextEra, MidAmerican Energy and EDF Renewable Energy were each approximately 1% of quarterly revenue.

Individual construction projects comprised 62% of our third quarter 2016 revenue with master service agreements comprising the remaining 38%. The individual project's number was higher than the normal being skewed by the large long-haul pipeline projects underway in the quarter.

At quarter-end, our 18-month backlog was approximately $4.7 billion compared to approximately $4.6 billion as of the third quarter end of 2015. As expected, backlog was down sequentially as we executed on the long-haul pipeline projects in our second quarter backlog.

And, as we indicated on release yesterday and as José reiterated earlier in this call, we have a clear visibility for significant oil and gas long-haul projects in 2017 and beyond. And despite the significant backlog burn expected during the fourth quarter, we expect to end 2016 with a record level of Oil and Gas segment backlog.

Regarding other areas of the income statement below the EBITDA line, third quarter 2016 depreciation and amortization expense was approximately $43 million or 2.7% of revenue, compared to 3.8% of revenue for the same period last year.

Interest expense for the third quarter of 2016 was $3.1 million or 0.8% of revenue, compared to 1.1% of revenue for the same period last year.

We expect annual interest expense levels of 2016 will approximate $52 million or 1% of revenue, and expect annual 2016 depreciation and amortization expense to approximate $167 million, or 3.3% of annual revenue. GAAP income tax expense for the third quarter was 40.7%, with a year-to-date GAAP income tax rate of 41%.

This rate is slightly better than our previous annual GAAP income tax rate expectation of 41.9%, due to the benefit of slightly improved state income taxes and the rate benefit of higher estimated 2016 income levels on mostly fixed levels of permanent book tax differences.

Finally, third quarter 2016 adjusted diluted earnings were $0.81 per share, well above the same period last year of $0.26 per share, and our third quarter guidance expectation of $0.69 per share. Now I'll cover 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 enter the fourth quarter with ample liquidity of over $450 million, much improved leverage ratio metrics, and excellent working capital metrics.

As we indicated at the start of the year, despite increased levels of working capital associated with significant forecasted 2016 revenue expansion, we expected significant improvement in our year-end leverage ratio metrics. We are pleased with the significant progress exhibited as of the end of our third quarter.

During 2016, our book leverage ratio, defined as balance sheet debt levels divided by rolling 12-month adjusted EBITDA, have exhibited significant improvement, declining from 3.3 times at 2015 year-end to 2.5 times as of the third quarter of 2016.

Our book leverage ratio as of the end of the third quarter of 2016 is now back in line with our historical performance, and at a level with which we're comfortable from a capital structure perspective.

Our third quarter 2016 accounts receivable days sales outstanding, or DSOs, were 61 days compared to 71 days as of the second quarter of 2016, and 75 days as of the third quarter of last year. Our working capital metrics are in excellent shape, as we benefited from project efficiencies and the timing of retainage payments.

As we have indicated in the past, DSOs can be lumpy due to the timing of retainage and project closeouts. And we continue to expect our go-forward DSOs will typically range in the mid-to-high 70s days.

Regarding our spending on capital equipment, third quarter 2016 cash CapEx, net of disposals, was approximately $20 million We anticipate that 2016 cash CapEx levels, net of disposals, will approximate $100 million.

Moving on to our 2016 full year guidance, we're currently projecting annual revenue approximating $5.1 billion, with adjusted EBITDA approximating $455 million or 8.9% of annual revenue, and adjusted diluted earnings per share approximating $1.73.

We anticipate that our 2016 annual GAAP income tax rate will approximate 41%, and our 2016 annual tax rate applied to our adjusted net income results will approximate 40%, with this slight difference due to the impact of fixed permanent book tax differences on higher estimated 2016 adjusted net income.

Lastly, our share count for diluted earnings per share is about 82 million shares for the fourth quarter of 2016 and 81.5 million shares for the full year 2016 period. And this guidance does not assume any share repurchases.

Turning to fourth quarter 2016 guidance, we currently estimate that fourth quarter 2016 revenue will approximate $1.3 billion, which represents a year-over-year revenue growth of approximately 27%. Fourth quarter adjusted EBITDA is estimated to approximate $132 million, or 10.1% of revenue.

And this represents a 61% increase in adjusted EBITDA when compared to the fourth quarter of 2015. Lastly, adjusted diluted earnings per share is estimated to approximate $0.54 per share compared to $0.21 per share during the fourth quarter of 2015, an increase of approximately 157%.

In summary, third quarter 2016 results were very strong, and we have also increased our guidance expectation for the fourth quarter and annual 2016 period. We continue to see increasing visibility with regard to growth opportunities for 2017 and beyond. Our capital structure is in excellent shape.

And we're well-positioned to take advantage of the multiple opportunities our markets afford us. That concludes our prepared remarks. And with that, we'll turn it back over to the operator for Q&A.

Operator?.

Thank you. And we'll go first to Alex Rygiel with FBR..

Thank you. Good morning. José, Bob and George. Fantastic quarter..

Thanks, Alex..

As it relates to the Oil and Gas segment, you had amazing margins in the third quarter. It sounds like you're going to have record backlog going into 2017.

I know 2018 is way down the road, but can you talk a little bit about some of these early conversations you're having with customers about – that gives you a lot of confidence with regards to the longer-term outlook for pipeline?.

Well, right now, there is a lot of projects. And I think, you've heard it from, I think, the whole industry, you've heard it from our peers, significant amount of work. A lot of big projects are planned. A lot of customers are out securing resources, not just for next year, but for a couple years out. Quite frankly, I've never seen it like this.

So, we're very bullish not just about obviously what we're doing this year or what happens next year, but into the outer years and even in the 2018. A lot of projects on the board for 2019 and 2020. So, right now, the end market looks great. Obviously, commodity prices are still struggling.

We need commodity prices to come back for the whole ecosystem to get better, right. We're still struggling in Canada. That's 100% due to commodity prices. I think when commodity prices start to rebound and sustain at a certain level, we'll see a lot more activity in Canada. We'll see a lot more activity in the shales.

I think in the shales, you have a lot of gas activity still, but obviously commodity prices are going to drive some of that. And we're pretty excited. The fact that we're so busy for the longer-term outlook and yet commodity prices we think can only go up. We think it bodes well for our long-term future of the business..

And turning to the Communications segment, it was, I think, about a year-and-a-half ago where a lot of us seemed to be a little bit concerned about the install-to-the-home business following the AT&T-DIRECTV merger. With your install-to-the-home business up 19% in this quarter, I think, that concern was a little too aggressive.

Can you talk a little bit about the strength in that segment? Clearly, it was very strong, but what about the outlook going forward?.

It's been an amazing year, right. I think the growth that we've enjoyed over the last, quite frankly, year has been more than we expected. Again, we've added a lot of people in that business over the last nine months to 12 months. It's impacted us, right.

I almost feel like we're back in the mid-2000s when that business was growing year-over-year-over-year. And we were just kind of throwing bodies at it to stay in front of it. There is no question been timed this year that we thought the same way. We're adding a lot of bodies to just meet the demand that's out there.

I think when you look back at when AT&T bought DIRECTV and the push that they made comps are starting to get a lot harder. I think we saw a lot of increased activity starting in the fourth quarter of last year. So I think as we look forward, we don't expect this level of growth to continue.

We do think it's going to start to kind of normalize a little bit in our eyes. And we don't view that as negative. We actually view that as a positive because we think we'll be able to mind the people that we have and get back to being a lot more efficient and productive and hopefully the margins will follow.

So we wouldn't have predicted that we were going to have the growth that we had. We do expect it to moderate back to historical levels, but we'll see..

Sounds great. Keep it up. Thanks..

Thank you, Alex..

And we'll go next to Matt Duncan with Stephens, Incorporated..

Hey. Good morning, guys. Great quarter..

Good morning, Matt. Thank you..

So, in Oil and Gas, I want to start there.

Just curious on the timing of the Diamond and Rover pipelines and how you think about your ability to kind of roll off a dapple (33:00) in the Mexican work on to these next jobs? How should we think about the sequencing there?.

Well, on the long-haul (33:10) work that's going to continue well into 2017. So we'll probably recognize about somewhere around half the revenues in 2016 and half the revenues in 2017. So that project flows nicely into the beginning of the year. The Diamond Pipeline will start – it will start in the fourth quarter this year.

So that will be ramped up nicely in the first half of 2017. We should be pretty much completed with all of dapple (33:36) by the end of 2016. We'll probably have some cleanup and a little bit of work to finish early in 2017 to go back and do some stuff. We expect Rover to start early in the year.

There's still some unknown relative to exact dates on all of this, right. Everything seems to ship and move a little bit. But, right now, we feel really good. It's still a little bit early for us as we think about 2017 and where everything lands.

But we're pretty comfortable that we've got some roll off and some project starts to kind of – that kind of work pretty well with each other..

Okay. Great. And then in Communications just on the outlook, maybe for each of the three pieces, if you could. I mean it seems like wireless is picking up momentum. We know wireline is very strong. The installation services – I mean I think it's probably reasonable to assume that DIRECTV installations are maybe going to slow a little bit here.

So how are you managing that aspect? And it sounds like you have had a lot of head count increase. So you're kind of slowing down on that. Just maybe a little bit of help on the outlook for the three pieces would be great..

Look, at the end of the day, we're going to manage to whatever the work is out there. We've increased our head count. We expect that head count – we're going to manage to that head count. So the expectation is that at our current levels we're going to be busy.

Whether we can continue to grow or not, time will tell, but we don't expect the growth rates that we had this year. On the wireline side of the business, there's still tremendous opportunity. We expect continued growth, on the wireless side.

Again, longer-term, we think 5G is going to be a huge opportunity for us, whether it's – that's probably not a full year 2017 event. It's probably later in 2017 that we really start seeing significant activity related to that. Quite frankly, we're very bullish about what's happening across all the segments there.

There's been some negative announcements here. As of late, we had one carrier that's kind of pulling back on their gigabit builds, which will have some impact. Obviously, AT&T is buying Time Warner and we've kind of been through this before where we're a little skittish about the short-term nature of that and what it might mean for our business.

I think we've taken all of that into account. So, I think that's part of the reason that we're thinking about maybe a little bit of a slowdown in Q4 because we're taking some of that into consideration. I think some of that may linger into the beginning of 2017.

But with that said, we feel great about our business, the long-term prospects and where that business is headed..

Okay. Great. Thanks, José. Congrats again..

Thank you..

And we'll go next to Matt Tucker with KeyBanc Capital Markets..

Hi. Good morning..

Hi. Good morning, Matt.

How are you?.

Good. Thanks. I wanted to ask first about Rover.

I mean, can you just, kind of speak to the level of visibility you have on the timing of booking that into backlog and then just your level of confidence in the project meeting all the hurdles it needs to move forward?.

Well, we expect it to be in backlog at year-end. We're very confident. That will help us have – get to what we've been saying for a while, which is record backlog at year-end in our Pipeline segment. We expect to start that job in the first half of 2017. We think that they're well on their way of receiving all of their final permits to get there.

They've got their environmental impact studies from FERC back in July. So, we feel really good on the timing. And there was some thought at some point that maybe we'd start some early works in the fourth quarter. I think those probably pushed out into early Q1. But, again, we expect starting in the second quarter 2017 that project to be in a ramp mode..

Very helpful. Thanks, José. And then, turning to Electrical Transmission, obviously, some nice improvement over the course of this year. And I know you're not giving guidance for 2017.

But any help you can give us on how we should think about the margins there in 2017? I mean is kind of breakeven EBITDA the goal here or can we start thinking about margin as going back to what you're able to do historically?.

Well, look, we expect to be at breakeven EBITDA margins in the fourth quarter, at least, right. So, we should already be there going into 2017. Obviously, it's early. We've won some nice projects. It's a big swing for us in 2017 versus 2016, right. We're going to have a roughly $35 million loss on a full year basis at an EBITDA level.

So, that creates a lot of earnings momentum for us in 2017. I wouldn't try to get ahead of us in 2017. Right now, we expect and hope that it's profitable. To what level of profitability we can get it to will depend on what we can win. And, I think, we'll give more clarity on that on our next call..

Sounds good. Thanks, José. Congrats on the quarter..

Thank you..

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

Thanks. Good morning..

Good morning, Noelle..

So, again, just going back to Rover, I guess there were a couple of industry sources. One, looks like you picked up maybe the entire project.

Can you just say if this is essentially a sole-source award? And then, secondly, on Oil and Gas, it's great to see that you're leveraging the investments that you made in capacity and earlier in 2013, 2014, So, given this multi-year visibility that you have at this point, are you starting to think about adding capacity? And in that context, can you just talk about your essentially revenue growth expectations as you go into 2017?.

Sure. So, on Rover, we said we won about 600 miles of it. It is not a sole-source award..

Okay. Okay..

So Rover is a little bit bigger than that. As we think about capacity, right, which, I think, is a good question. We did $736 million in this quarter. So, in a perfect world, everything is timed correctly that kind of works its way to being close to $3 billion a year. So I think we have the capacity to do that kind of revenue.

I don't think we have the work to that kind of revenue. So we'll end the year doing somewhere around $2 billion this year, just over $2 billion. We would expect to see growth in 2017, but not at a $3 billion a year. So from a capacity perspective, we think we're in really good shape. Obviously, we'll hire to whatever work we have at any given time.

And it may require a little bit of ebb and flow there. But we don't think that we are in a position where we're going to have to make any significant capital expenditures or any significant ramp in hiring to meet the goals and the objectives that we have. As we think about 2017, again, our challenge is as it is everybody else's. It's early.

We've been through this before. So we've got great expectations. We're super excited. We've got a lot of work to accomplish, but there's still some unknowns. There's still some final permits that have to be attained. So what period exactly we started and what month we started, those things can move.

We don't expect significant movement, but they move by a month or two months. It has a significant impact, which is why we'd probably be looking at taking a more conservative view as we start looking at 2017 today until we have more clarity. And we think we'll be able to give a lot of clarity on our next call.

But if I was just guessing today, we'd probably be thinking about low-double-digit growth for next year on the top-line..

Okay. Perfect.

And then, shifting over to Communications, just looking at some of the moves the AT&T has made over the past few years acquiring DIRECTV, now looking at Time Warner, can you just comment on the transformation that's going on at AT&T and how this impact – how you're thinking about both the install-to-the-home business and wireless and potentially some of the opportunities there over the next few years?.

One of the great things about our industry is it's always changing. And our job is to understand what changes are coming, understand what our customers' needs are and then try to put ourselves in a position to take advantage of that with whatever service offering we can offer. Obviously, this is a different type of acquisition for them.

It gives them a lot more control over, not just delivery, but content, owning the content. I think they are going to push the delivery a lot harder. They've already made very positive commentaries around 5G and their need to increase their speed on the wireless network. We almost see this as a catalyst for that.

So we think that this deal is going to really help that side of the business and what they're going to ultimately try to accomplish there. We think that they bought DIRECTV. We think it's a great model for them. They have done an incredible job of growing the customer side of that business. We think that's going to continue.

They're obviously coming out with other products that, I think, they're targeting a completely different audience for. We see all that as incremental and it's good. I think they are great customers. They are a healthy company. They've got big plans.

And I think that there is going to be a lot of opportunity for us to help them achieve the goals that they want to achieve..

Thank you..

Thanks, Noelle..

And we'll go next to Dan Mannes with Avondale..

Thanks. Good morning, guys..

Good morning, Dan.

How are you?.

I'm great. Quick comment or a quick question on Oil and Gas, obviously tremendous performance in the quarter. I don't know if you can delineate at all the margin improvement, the 16%. I think this is probably the second best quarter we have on record for you.

Can you break out how much of that is just tremendous overhead absorption given the revenue level versus execution, et cetera? Because the tendency obviously is do we extrapolate this out or not? So any help there would be helpful..

Sure. So, if you think about 2013, we did about 13% margins on a full year basis. We'll beat that this year. If you go way back into the 2008-2009 timeframe, our margins were a lot better than those. So, historically, we've seen it. We had an excellent quarter. I think our team is doing a great job. I think it's a mix of everything you said.

I think it's solid project execution along with very high utilization levels at this point. Our performance in 2017 and how we think about extrapolating margins is all going to be dependent on the same issues, right, when do project starts, how much utilization do we get in a particular period. We're very happy with our performance as it was in Q3.

We think our Q4 performance is going to be – it will probably be a little bit lower, but it will be within that range. And as we think about 2017, the potential is there to do that and more.

And, at the same time, as we think about going into the year with the bunch of new projects starting and timing being when it is, we'd probably looking at going into 2017 with a more conservative view, until we had more information..

No. That makes a lot of sense. The other thing I want to ask about is, earlier in the conversation, you obviously mentioned that all of your growth this quarter was organic. You haven't done M&A in two years.

What's the balance sheet improvement you've seen? How does that position you potentially to be active in M&A again, and is that an area that you're ready to start focusing on?.

Yes..

Perfect. Thank you..

Thanks, Sam..

And we'll go next to Andrew Kaplowitz with Citigroup..

Good morning, guys. Nice quarter..

Good morning, Andy..

José, so can you talk a little bit more about – you mentioned the growth-related production efficiencies that you have in Communications. Back a few years ago, when you started having what look like similar growth related issues, they stayed with you for a little while. And maybe they got worse before they got better.

So, maybe you can talk about how the company is different, better prepared now to deal with the growing pains, versus a few years ago on the Communications side?.

Andy, I think it's completely different. The reason I do is, if you go back to that timeframe, we were working with a customer who, at that moment in time, was experiencing exponential growth on a year-over-year basis. And we were in catch-up mode for a long, long time.

I think what we've had here is an acquisition by one customer from another customer. They've made a solid investment and a solid push into their business over the course of the last nine months to 12 months. But I think we're already beginning to see it moderate. Our ability to manage that is a lot better.

Our inefficiencies are all around the high percentage of new employees that we have. A new employee is not as efficient and effective as a person who's been here for a period of time. That's just a fact, right. We've got significant training cost that we put upfront, significant hiring cost, significant recruiting cost.

And I think we've experienced that over the course of the last, especially six months, and more importantly, in the quarter. Again, we're beginning to see that subside. I think we've made our employee push. I think we're super well-situated to meet the demands of our customer at this point.

And I think we're going to start to see improvements, quite frankly, I think we're already seeing them. Again, we're halfway through the fourth quarter, but I think, as we think about 2017, we'll get a full year of those improvements in versus 2016..

Okay. That's helpful, José. So, your Power Generation and Industrial business reached the highest level of revenue that we've seen, I think, since 2012 in a quarter. You seem pretty bullish about the business. Your backlog is down pretty significantly, though, in the business.

So, just how do we think about the business as you go into 2017? Is 3Q a revenue high point, or do you expect growth in that business as well?.

No. I think – for this year anyway, I think third quarter is our high for the year. If you think about – we had a solid revenue quarter. We had about $101 million of new bookings and backlog in the business for the quarter, so a little bit less than what we generated in revenue. We've had a couple of really nice wins post quarter-end.

We didn't talk about it, but projects in that business tend to be somewhat sizable. So a couple projects make a huge difference. So I think it's all about timing. I think backlog is going to look better by year-end. And, again, we're bullish going into 2017. We think there's some solid growth opportunities there.

And we think – we're working hard to improve margins. It's the one area that we're focused on. It's really not about revenue growth for us, although we think we'll get some. It's more about trying to get that margin profile up to where we think is a better level. And I think hopefully, in 2017, we'll see some of that..

A better level is high-single-digits in that business, would you say, José?.

At least – let's call it higher than they are today. I don't know if they get all the way to high-single-digits, but I think somewhere in the mid-single-digits, higher than where we are today, is really what we're shooting for..

Okay. Thank you, guys..

Thanks, Andy..

We'll go next to Jason Wangler with Wunderlich..

Good morning, guys. José, you obviously are talking a lot about the Oil and Gas side and how busy it's getting.

Can you just maybe talk about how the contracts are looking? Are you starting to see some better pricing? Obviously, margins did really well year-over-year, but just wondering if you're starting to see that kind of tilt in your favor as well?.

We've been saying for, I want to say six quarters now, that we don't think pricing is an issue. We think pricing has been solid, especially as you look at some of the larger projects. I think the base of contractors that are there know exactly what it takes to get those job done.

Everybody is disciplined because obviously, these projects are big and there aren't many that can do it. Where there has been pricing pressure is in a lot of the smaller work, especially the shale related, gathering related. We haven't had to participate in that market as much, because we've been so busy.

As that market picks up and there's more demand there, which will happen as commodity prices begin to rebound, it's going to create a lot of pressure on the industry, and it's going to make those markets a lot better, which I think bodes well for the oil industry.

But from a macro pricing level on the larger pipe side, it really hasn't been an issue..

Great. And you talked a lot about Rover already, as far as timing and startup. Just more curious.

Do you have an idea, just how long you'll be on that project as far as months, or even just the timeline as far as just trying to understand how long that will be on your calendar, once it starts up?.

I think the customer's expectation is that that project would be substantially complete in 2017..

Okay. That's helpful. Thank you..

Thank you..

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

Hey. Good morning..

Hi. Good morning..

Just curious if you could give us an update on progress in Mexico? I know that's a little bit more protracted as an opportunity, but curious this last quarter (50:34) whether or not you're seeing any developments there? Also whether or not, as you talk about having visibility out to – (50:42) looking at stuff for maybe even 2019, how much Mexico might factor into that kind of a timeframe?.

Well, first, we're so proud to be part of initiative to build some of the first lines to bring cost effective clean natural gas to Mexico to help them with their economic development. That's what the Waha project is all about. So that's really been kind of our entry into the country. We've now been there for a significant period of time.

We are going after a ton of different projects. There is a lot of projects on the board. There is a lot of things that are in late stages that we feel really good about. Again, we kind of talked a little bit about the sales cycle in our remarks this morning. It's taking longer than we expected. Commodity prices have obviously been a drag for them.

And they're trying to do some creative things to maybe get some of these projects going. So, we're very bullish. There is a massive need for infrastructure in Mexico. It's going to come. It's going to be a huge opportunity. We think we're incredibly well-positioned. We think we're going to be a significant player.

It's not going as fast as we would have hoped or we would have liked. I don't think it makes a – I don't think it has a significant impact on 2017, but I think it could have a significant impact on 2018 and beyond.

We're also seeing significant opportunities related to the Transmission side of the business as their energy regulations are becoming more and more adopted throughout the country. We're starting to see some great opportunities related to that as well. So, we just view it as a great market, where we've been in for a while.

The wireless side of the business with AT&T's entry over the last year or so is also affording us some opportunities. So, our presence continues to grow, again, not sizable today, as sizable as we'd like it to be, but a tremendous opportunity across a number of our markets.

And we think, in the coming years, it's going to really make a significant impact on the overall company..

Great. Thanks. And then, just switching gears to Communications, we were talking about potential consolidation and/or AT&T's M&A plan. And I was wondering if, just looking at the different segments of Communications, whether or not there are certain areas where you'd think that maybe there would be potentially more deceleration in CapEx than in others.

So, where you think that you have CapEx plans and maybe the stickiest or have the most discretion to be pulled back on it?.

Look, at this point, we think they're all sticky, right. The wireline business – a lot of the drivers in the wireline business are based on commitments made to the SEC relative to their previous acquisition as it relates to that customer. So we don't think that – we really don't think that's in any kind of jeopardy whatsoever.

We're seeing a lot of the other communication providers on fiber expansion and gigabit type speeds. It's a very active market and we're very bullish about that on the wireless side of the business. At the end of the day, it's all about speed and we're doing more and more on our devices in our wireless devices every day.

Speed is becoming a more critical component of that. A lot of the things that – if you think about their Time Warner deal, a lot of things that they're trying to do over the top, they need better speeds for, the industry needs better speed. So I think it bodes incredibly well for the long-term nature of the wireless industry.

And I think, over the coming years, we're going to see tremendous acceleration from multiple carriers, especially as they think about 5G and their roll-out of that..

Great. Thank you..

Thank you..

And we'll go next to Andy Wittmann with Baird..

Great. Good morning..

Good morning, Andy..

I guess, I just wanted to ask a couple of questions on pipeline and specifically I guess on the Diamond Pipeline. Is that also shared scope or is that – that's a little bit smaller project.

So is that maybe full scope for you guys?.

It is not. We've got pieces of it..

Okay. And just in terms of the other project that drove your earnings for the quarter. It seem like weather was good and productivity obviously was good.

What percent of complete does that project stand at as the quarter ended? And, I guess, is that a factor in the fourth quarter outlook or is that truly all just weather? I mean, will you be – if it's done?.

Andy, which project are you talking about?.

The Dakota Access Project..

Look, it's – we'll be substantially complete on that project by year-end. We'll have some stuff we've got to go back and finish in 2017. But the plan all along was for that project to complete in 2016. Again, it's been a good project. There's been – obviously all over the news the protest related to that projects have been very visible.

It's been very taxing on us as an organization, on our customer. It's been incredibly challenging. There is a lot of talk about protests being peaceful, but the reality there, they're much from being peaceful. And our people have shown incredible restraint in their ability to continue to work and get things done despite a very challenging environment.

But we're making good progress on the job. Obviously our customers still have some issues related to getting the final permit for drilling under the river. And we'll see when that happens. But, from our perspective, we're on schedule on the job. And, again, we expect to be substantially complete with our scope by year-end..

All right. And then just maybe on T&D, I was hoping to get a sense of the underlying margin there a little bit more. It sounded like there was a bit of a charge in the quarter. You guys commented to this a little bit.

But if you pull out the – what was the size of the charge, so we can get a sense of that underlying margin?.

I'd say, without that job, we were at approximately a breakeven EBITDA..

Okay. All right. Thank you very much..

Thank you..

And we'll go next to Chad Dillard with Deutsche Bank..

Hi. Good morning..

Good morning, Chad..

So, I just wanted to get a little bit more color on your Canada business.

Are you starting to see any signs of stabilization or the market bottoming? And if you can provide some initial thoughts on how you see that market as we enter 2017?.

Sure. It's been a rough year. Revenues are down pretty substantially from 2015. We knew it would be a challenging year. I think there is signs of hope. At times, we see really good bright spots. I think when oil was around $50 and it stayed there for a little while, there was a lot of excitement. We started to see some activity.

Obviously, it's come back a bit. I think we need to see some stabilization of price above $50 to begin to see some real sustainable activity. But, again, we think it will get there. It's a great market. We're super well-positioned for the long-term. But, in the short-term, even into 2017, we expect continued weakness.

And, hopefully, we begin to see some improvement in 2018..

That's helpful.

And then as you ramp into the prime construction in the cycle for Oil and Gas particularly, how are you thinking about operating cash flow relative to net income? And then also how would you rank your capital deployment priorities between deleveraging, capital return to shareholders and M&A?.

Well, I think, we did an incredible job in the quarter of generating really nice cash flow despite 43% revenue growth. So, we would have thought that if we're going to have 43% revenue growth, we would have had to eat into some working capital. We demonstrated – we were able to generate cash despite that.

So I think that's a great sign and a sign and hopefully we can continue delivering on that. From a capital allocation perspective, we'll say what we've always said. We're going to try to make the best decision for the company.

Two years ago, we talked about the opportunities that were in front of us, our need to really focus on those opportunities, execute on those opportunities and deliver on those opportunities. So we kind of took a hiatus from M&A.

We kept looking at deals all the time, but our focus had to be on delivering what was in front of us and taking advantage of those opportunities. I think we've now demonstrated that we've done that. I think we're in a great shape from a company perspective in our ability to manage that growth, to manage those opportunities.

We are now intrigued by a lot of opportunities that exists out there on the M&A front. So I do think and I'm confident in saying that, I think, we're going to be a lot more active there again. There are some things that we really like and intrigue us.

So we think right now from a value perspectives that may add the most to our shareholder value and that's how we'll look at it..

Thank, guys. I'll leave it there..

Thank you..

And our last question will come from Fran Okoniewski with Friess Associates..

Hey. Good morning..

Good morning..

Just curious.

How much in the Communications segment do you guys have, if any, in either Latin America or Mexico?.

We don't have any in Latin America. We've got a small piece in Mexico. We do wireless work both for Telso (1:00:26) and AT&T. So I'd say it's a small – very small percentage of what we're currently doing..

I'm hearing of some initiatives Red Compartito (1:00:40) or some 90 megahertz spectrum.

Are you guys bidding on any of that or is there any opportunity for growth down there that we haven't really talked about?.

It's an unbelievable opportunity. It is probably the largest piece and one of the most valuable pieces of spectrum being auctioned off in the entire world right now. Should it happen, should it get awarded, the amount of work that's going to be required to that is – it's amazing.

It's a huge, huge opportunity for the industry in Mexico from a wireless build out perspective. It's a great opportunity for us. We're very well-versed on it. And as it develops and come to fruition we'll talk a lot more about it..

Is it fair to say that there are just a few sort of contractors of your size that would be able to handle this size opportunity down there right now?.

Well, there is currently two bidders for it. The bidders aren't contractors. They are carriers that would ultimately be responsible for the build out of that. An award is expected. And, again, I don't know if the timing is going to be held, but there is an award expected in November.

If that award happens, obviously, we think we're well positioned in country to participate and help whoever wins that, build that out. It's a very, very sizable and long-term project that again we would definitely go after and it would be an honor for us to be involved with..

How much investment would you all have to do in terms of infrastructure to take that on or could you just overlay some of the capacity that you have up north?.

It all depends. I mean, look, you'd want to build in country capabilities it all depends on – I think it's very premature, because it's all depends in on what we would be able to be awarded and what kind of scope we would ultimately be able to do. It's estimated to be a $5 billion plus buildout, so, who knows.

It's too early for us to answer that question..

Okay. Hey. Thanks a lot, guys..

All right. Thank you..

That concludes today's question-and-answer session. I'd like to turn the conference back to José for any additional or closing remarks..

Again, just want to thank everybody for participating on today's call. We're very excited about our performance for the third quarter and really for the balance of the year. We look forward to our year-end call and updating everybody as to where we're at, where we finish the year and give a lot more clarity on 2017.

So, thank you for participating today..

That does conclude today's conference. We thank you for your participation. You may now disconnect..