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

Adam Robert Thalhimer - Thompson Davis & Co., Inc. Alan Fleming - Citigroup Global Markets, Inc. Tahira Afzal - KeyBanc Capital Markets, Inc. Noelle Christine Dilts - Stifel, Nicolaus & Co., Inc. Chad Dillard - Deutsche Bank Securities, Inc. Matt Duncan - Stephens, Inc. Alex Rygiel - B. Riley FBR, Inc. Brent Edward Thielman - D.A. Davidson & Co. Jamie L.

Cook - Credit Suisse Securities (USA) LLC Justin P. Hauke - Robert W. Baird & Co., Inc..

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, Abie, and 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 the 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 Investors and News section of our website located at mastec.com.

Today, we have with us José Mas, our CEO; and George Pita, our Executive Vice President and CFO. The format of the call will be opening remarks and analysis by José and followed by a financial review from George. The discussion will be followed by a Q&A period and we expect the call to last about 60 minutes.

We had another great quarter and a lot of important thinks to talk about today. So I just pass it over to José.

José?.

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 million, 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 and 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 and 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 three-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 Communications 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 continue 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 are 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 announcement on plans to spend $40 billion over three 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 two years and we look forward to performing 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 in 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 we expect will go into backlog as of the second quarter.

Our Oil and Gas pipeline segment had 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 and 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 complete in the second quarters and margins to considerably increase for the balance of the year. Our Oil and 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 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 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, José 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 multi-year 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-month 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 of 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 pre-tax 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 and Gas and 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 and Gas and Power Generation and Industrial.

We believe our record backlog levels 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 2.3 times 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 and 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 and 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 and 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 the 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 startups of some wind renewable 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-home services were approximately 9%.

On a combined basis, these three 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 times 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 and 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 multi-year 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-end book leverage ratio was 2.3 times. As of quarter end we had liquidity of approximately $555 million, clearly allowing us full financial flexibility to take advantage of the various growth opportunities our markets affords us.

As we indicated earlier, we ended the first quarter with higher than normal levels of working capital invested in large oil and 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 in excess of billings and retainage 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 in year-to-date share repurchases, we anticipate that year end 2018 book leverage ratio will approximate 2 times.

Reiterating 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 repurchase 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 of 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, as I 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 a 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 the 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 multi-year infrastructure initiatives expand and accelerate into 2019 and beyond. And that concludes our prepared remarks. We'll now turn it back to the operator for Q&A.

Operator?.

Thank you. We will take our first question from Adam Thalhimer with Thompson Davis. Please go ahead..

First question I wanted to ask about the – on the wireline side. José, you've been talking about large wireline projects for several quarters now.

Are those now substantially underway?.

Good morning, Adam. 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 2019. So I think, you're starting to see the beginning of it but quite frankly, it's really just getting started..

And then in Oil and Gas, can you 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 a peak level in backlog, we work it off then we 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 project 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..

Okay. Thanks..

Thanks, Adam..

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

Hi. Good morning, guys..

Morning, Alan..

José, maybe I can start on communication margin. I mean, you had – you talked about facing some start-up cost here in the first half and you instead did double-digit margins there, 13% I think it's 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 the margins can't kind of be at this level going forward as revenue continues to ramp into the second half of the year?.

You know 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 and 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 margin, so it probably represented 150 basis points to 200 basis points in the quarter. We see the margins somewhat normalizing. I think our target for 2018 was about 11%.

We've historically talked about being north of 12%, into 13s, which we've kind of approached in the back on a full-year – in the past on a full-year basis. Market's playing out really well. We will have some start-up costs that we are currently obviously going through with all of the ramp. We've got an activity around Communications.

We'll continue to have some of that I think over the course of the next couple of quarters. But there is 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 sails and we're really excited about what's coming..

That's very helpful. And then my follow-up maybe is on Oil and Gas margin. Can you still reach your EBITDA margin guidance there for the year of low 13% if 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 margins. So margins would have been a couple hundred basis points better in our Oil and 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 and 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 end versus here 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 year and a half, 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..

Thank you, guys. Good luck..

Thank you..

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

José, congrats to you and your team on another good quarter..

Thank you, Tahira..

José, just based of what you're saying and if you look at the telecom sector, obviously a lot of growth ahead into 2019. It seems maybe Oil and Gas has had that transition year in 2018 with some Canada work coming back, some Permian projects seeming to be fairly large.

So as you look out to 2019 and I know it's early, qualitatively speaking, it seems all your sectors 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 directionally your EBITDA margins as well should progress up as a consequence? You are anniversarying out some tough Oil and 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 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, Tahira, to your comments I think we've got the opportunity to grow all of our segments into 2019, including Oil and Gas, with an improvement in margin almost across the board.

I think it bodes really well for us going into the remaining part of 2018 and more importantly 2019 and beyond..

Okay. Thanks a lot, José..

Thank you, Tahira..

Our next question comes from Noelle Dilts with Stifel. Please go ahead..

Hi, thanks. Good morning and congrats on a nice quarter..

Thanks, Noelle..

So, given just the strong growth profile that you're seeing in both oil and gas markets and in telecom, could you just comment on what you're seeing in terms of pricing and 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 year-and-a-half 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, it significantly impacts 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 and 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 is going to see some labor pressure. We think we've done a really good job of trying to prepare ourselves and 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 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 on 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 this – opportunities around these very big projects or is it kind of across the board generally accelerating bidding opportunity?.

So we're really excited on 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 is 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..

And that's helpful. Thank you..

Thank you, Noelle..

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

Hi. Good morning, guys..

Morning, Chad..

So based on what you have ahead of you in Oil and 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 it will 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 take into consideration just like those level of contingencies you booked there versus let's say the Marcellus and the 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 three or four 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 small to mid-sized projects and the mid-sized projects could be a couple of hundred million dollars apiece. We expect that trend to continue in 2019, 2020, 2021 based on the 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 this 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 projects in the business. So we're very encouraged. We think activity levels today are as high or higher than they've 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?.

Yeah. So from a revenue perspective, we expect our Comm business to be up double digits in 2018 versus 2017. Not much different than what we've said in the past. We expect the DIRECTV business to decline in 2018 offset by a lot of growth in both our wireline primarily and then our wireless business. We think the wireless is more of a 2019 story.

From a FirstNet perspective, we saw incredible order flowing. The first quarter, I think our order flowed 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 constructability 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 2019. So I think 2019 is a dramatically bigger year for that than 2018 is. And it probably will continue to grow through there.

I don't think 2019 is a peak either, I think the peak's going to come out in 2020 or 2021. 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..

Thanks. I'll jump back in queue..

Thank you..

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

Hey. Good morning, guys. Let me add my congratulations on the quarter..

Thank you, Matt..

So, sticking with Comms and thinking about the backlog there José, you've had five consecutive quarters of backlog growth, you're up 35% in Comms backlog over that timeframe and that's only an 18-month backlog and you're talking about a peak that's let's call it at least three 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 within 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 numbers are 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 happens 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 could get over the finish line here in the next call it – basically between now and the end of the year? How do you balance out those two 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 seven times earnings.

The reality is that we've got a lot of private deals in our space being done between 8 times to 10 times. 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 this to continue..

Got it. Thanks, José..

Thanks..

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

Thank you and great quarter, José..

Thanks, Alex..

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?.

Yeah. So in Puerto Rico, we've been there for a long time. Obviously the storm dealt a 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 is a number of RFPs that we've 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 talk 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 influx. 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 got some benefit from the short-term nature of the storm but quite frankly, there is tons of opportunities I think over a two- or three-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 in wireless in 2019? In the past, there was tower climbers, but what's it 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 these 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..

Thank you..

Thanks, Alex..

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

Thanks. Good morning. Great quarter as well..

Hey. Thanks, Brent..

José on Oil and Gas the discussions with customers for jobs seems it continue to extend out, I think you're now saying preliminary discussions out to 2022. Obviously, capacity in the market has been a part of that focus there.

But it seems to me from what you're saying that there is some sort of new jobs that have been on the sidelines now, looking more realistic or economical to develop.

Is that more of what's going on here?.

Different customers have different needs, so it's not a broad-brushed answer, because there is – 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 may be to power power plants.

Some may be to offset their transportation costs from truck and rail. Others may be 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 three 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 we 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 that give us some more comfort around kind of the margin profile as you look to execute on that?.

Look, it's a business that for a couple of years underperformed relative to where we were expecting and where we wanted 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 talked about the large award we got from XL a while back. That was over a 1 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 than that that's going to kind of just naturally roll into backlog as some of those projects get closer to fruition. The renewable market is 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 lifecycle of that business..

Great. Thank you..

Thank you..

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

Hi. Good morning and nice quarter. I guess just two 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.

Just to be clear, Oil and 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, José.

Understanding the prospects in Oil and 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 and Gas over the next couple of years, assuming markets are, okay, is a 3 billion-ish plus or take revenue business?.

So a couple 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 base off that number in 2018.

We think that that is no – 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 two 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 of 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 is two markets that we've talked I think ad nauseam about. And I don't think they've impacted us the way we would have hoped or we've expected at this point, but we're very confident that they will over time. So I think the U.S. market is going to be strong.

I think the U.S. market is going to be strong in perpetuity of the amount. Again the 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 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 two 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 two, three years out into Canada, I 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 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 the 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 the 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..

Okay. Thank you. I appreciate the color..

Thanks Jamie..

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

Yes, good morning. Thanks for taking my question. I've got two 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 reimbursable 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?.

Yeah. So I'll answer it. It's José. So I think when you look at it it's largely been driven by two main projects, two 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 the 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 have the – 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 numbers grown, obviously it's affected our DSOs to someway. 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 work.

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 two to three months..

Okay. No, that's helpful. Thanks for fleshing that out a little bit more. I guess, the second question, I just wanted to understand on FirstNet, that 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 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? Thanks..

Yeah. So, as we said earlier, it didn't have a big impact in Q1. We saw the 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 stage didn't opt in until the fourth quarter. So I think you've still got a lot of work going into building out the plants.

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 and peak. I don't think 2018 is by any stretch of imagination the peak. And quite frankly, I don't think 2019 is the peak either.

So I think we're going to continue to see backlog growth and order activity growth from FirstNet for the next year-and-a-half..

Great. Thank you..

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

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

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