Ladies and gentlemen, welcome to MasTec's First Quarter 2019 Earnings Conference Call, initially broadcast on May 3, 2019. Let me remind participants that today's call is being recorded. At this time, I would like to turn the call over to Marc Lewis, MasTec's Vice President of Investor Relations. Please go ahead, Marc..

Thanks, Amy. Good morning, everyone. Welcome to MasTec's First Quarter Earnings Call. The following statement is made pursuant to the Safe Harbor for forward-looking statements described in the Private Securities Litigation Reform Act of 1995.

In these communications, we may make certain statements that are forward-looking such as statements regarding MasTec's future results, plans and anticipated trends in the industries where we operate.

These forward-looking statements are the Company's expectations of 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 Securities and Exchange Commission.

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 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 financial measure can be found in our earnings press release, our 10-Q or in the posted PowerPoint presentation located in the Investors and News section of our website located at mastec.com.

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

We had another great quarter and have a lot of important things to talk about today. So I'll turn the call over to Jose.

Jose?.

Thanks, Marc. Good morning and welcome to MasTec's 2019 first quarter call. Today, I'll be reviewing our first quarter results as well as providing my outlook for the markets we serve. First, some first quarter highlights. Revenue for the quarter was by $1,518 million, an increase of 9% over last year's first quarter.

Adjusted EBITDA was $140 million versus $108 million in last year's first quarter. Adjusted earnings per share were $0.58 versus $0.35 last year and backlog at quarter end was $8 billion a new record level. In summary, we had another excellent quarter. We're very proud of our first quarter results and they were better than we had expected.

It's important to note that our first quarter in 2018 was favorably impacted by storm restoration efforts that made 2019 a tougher comparable quarter than normal. Despite that we significantly exceeded revenue, EBITDA and EPS over last year. In addition to our financial results, operational momentum for our building -- for our business is building.

We are seeing accelerating opportunities across all of our business segments. We had sequential backlog growth of $300 million with backlog increases in our Communication, Oil & Gas, and Power Generation segments. Today, the markets that we serve are incredibly robust. Every segments that we operate in provides us with great opportunity for growth.

Capital spending across all of our segments is increasing and regardless of what happens within infrastructure build the debate will highlight key infrastructure needs. While, the primary focus of an infrastructure build has historically been on road and bridges.

Today, the debate quickly includes the power grid, broadband, 5G, clean water and the importance for cuttings the red tape, as it relates to regulatory and environmental delays. We are confident that demand for our services will continue to grow, creating even more opportunities for MasTec. Currently, the near-term growth catalyst for MasTec include.

The continued deployment of higher speed Internet to the home through fiber by both the regional bill operating companies and cable companies. The accelerating investments of fiber related to 5G connectivity. The densification of the wireless network including both macro and small cell sites, which in all reality is just getting started.

The continued investments in Oil & Gas pipelines to meet both production needs, as well as the transportation needs in making sure products are getting to the highest paying markets.

The required investments in both increasing reliability and the power transmission grid as well as making renewable power more accessible, especially in those states that are increasing their renewable standards.

And finally, our continued expansion in the growing opportunities in our Power Generation and Industrial segment, including wind, solar, biomass and water resources. This is an exciting time for MasTec. We're focused on executing for our customers with an emphasis on safety, reliability and value.

We're proud of our success and most importantly thankful to our customers for their trust, loyalty and repeat business. Now, I'd like to cover some industry specifics. Our Communication revenue for the quarter was $613 million versus $627 million last year. The decrease was driven by the level of storm restoration work in 2018's first quarter.

EBITDA margins in the segment were 7.4%. As expected, margins were impacted by the significant investments we are making in growing our workforce in response to our customers needs and future plans.

In our wireline and wireless business, we've added nearly 1,500 team members from last year's first quarter with almost 1,100 of those added in the last six months. Our services offered to both our wireline and wireless customers continues to expand and diversify. We are engaging with our customers earlier and engaging in more value-added services.

Today, our services include design review, engineering, site acquisition, lease negotiations, permitting, material procurement, warehousing, kitting, structural reinforcement, fiber build out, power coordination and provisioning, tower construction, antenna installation, tower wiring and splicing, integration, commissioning and after construction, we offer full maintenance of the network.

Currently our fiber business has two major initiatives. One, centers around the continued deployment of higher speed services to the home primarily through fiber. The other is fiber backbone expansion primarily related to offering wireless backhaul services.

With considerable backlog related to this initiative, we expect significant growth as we go from early stage engineering into construction which carries a higher-dollar value. We expect this transition to accelerate in the second half of 2019. We're also encouraged by future opportunities and believe we are at very early stages in this cycle.

Our wireless business saw strong year-over-year growth. While we're seeing significant demand from our customers, we're in the very early innings of 5G deployment. We believe we are well-positioned in this market as the leading wireless infrastructure provider with significant opportunities for long-term growth.

While we expect continued growth during the balance of 2019, our true opportunity is to position ourselves for 2020 and beyond where we believe the opportunity will be substantially greater. Moving to our Power Generation and Industrial segment. Revenue was $189 million for the first quarter versus $118 million in the prior year.

Backlog improved sequentially and is currently over $700 million. We expect revenue growth of approximately 35% for the year. Over the course of the last couple of years, we've done an excellent job of diversifying our services offered through this segment.

Our 2019 revenue estimates are comprised of wind farm construction, turbine repowering projects and maintenance, utilities scales solar construction, compressor station work, civil construction, vertical specialty construction, gas-fired peaker plans, biomass facilities and water infrastructure.

Revenue in our Electrical Transmission business was $95 million versus $114 million in last year's first quarter. Backlog was up 12% year-over-year and does not include a number of large projects awarded but not yet signed.

We've also been awarded a number of EPC projects, which will not generate significant revenue in 2019, as we perform a lot of the front-end work, but revenue should substantially increase in 2020 as these projects go into the construction phase.

Our expectation is that 2019 will be a better year than 2018, but we should see significant financial improvements in both revenues and margins in 2020 based on our current backlog and expected awards. Our Oil & Gas pipeline segment had revenues of $621 million for the first quarter compared to revenues of $536 million in last year's first quarter.

Our first quarter revenue was diversified with our largest customer only making up 15% of segment revenues. Backlog also increased sequentially to roughly $2.5 billion. It's important to note that the backlog growth was not driven by any large single-project award.

With that said, we do have a number of very large project global awards that we expect to include in backlog in the coming quarters.

Demand for our Oil & Gas segment services, include pipeline construction, integrity work, large diameter horizontal drilling, distribution, booster stations, meter stations, compression stations and water management and they continue to grow. We currently expect Oil & Gas segment revenue to grow over 2018 levels despite some project delays.

Our full year guidance provided today assumes continued permitting and project challenges. As we look ahead into 2020, we have now significantly committed our capacity to our customers. While we'll always try to maximize our utilization, we're in a privilege position to have this much visibility into the future.

To recap, we're off to a great start in 2019. Our backlog is strong and more importantly our future outlook is excellent as we're enjoying growth opportunities across all of our segments. 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, Jose and good morning, everyone. Today I'll cover first quarter financial results, including cash flow, working capital usage, liquidity and capital structure, as well as our increased guidance expectations for 2019.

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 in details of non-GAAP measures can be found on our press release, on our website, or in our SEC filings.

It is worth noting that our first quarter 2019 GAAP results reflect a $2 million tax expense benefit from restricted stock vesting activity and this benefit has been excluding from our adjusted results, as we done consistently in prior periods where this occurred.

Here are few summary comments regarding our first quarter performance, which provided a strong start to 2019 exceeding our expectation. First quarter 2019 consolidated revenue of $1.5 billion grew by approximately 9% despite the non-recurrence of approximately $75 million in Puerto Rican storm restoration services last year.

Excluding this impact, first quarter 2019 consolidated revenue grew by approximately 15%. First quarter consolidated revenue exceeded our expectation by approximately $120 million mostly due to higher Oil & Gas segment revenue.

First quarter 2019 adjusted EBITDA was $140 million or 9.2% of revenue representing the largest first quarter adjusted EBITDA level in MasTec's history. Despite significant ramp-up cost incurred in adding crew capacity. This performance level exceeded first quarter 2018 levels by $32 million or 30%.

Adjusted EBITDA of $140 million exceeded our expectation by approximately $14 million and adjusted EBITDA margin rate of 9.2% of revenue exceeded our expectation by approximately 20 basis points, primarily due to higher-than-expected Oil & Gas segment performance.

First quarter 2019 adjusted diluted earnings were $0.58 per share compared to $0.35 per share last year, representing a 66% year-over-year increase. First quarter 2019 adjusted diluted earnings exceeded our expectation by $0.15. And lastly 18 month backlog as of first quarter 2019 was $8 billion a new record level.

In summary, first quarter 2019 provided a great start to the year, exceeding our expectation and supporting our continued confidence in our future growth potential while affording us the opportunity to increase our annual 2019 guidance expectation. Now, I will cover a summary of first quarter 2019 segment performance.

First quarter 2019 Oil & Gas segment revenue increased approximately 16% compared to the same period last year to approximately $621 million. First quarter 2019 Oil & Gas segment adjusted EBITDA margin rate was strong at 17.3% of revenue a 1,110 basis point improvement over 6.2% of revenue reported in the first quarter of 2018.

As previously communicated, we expected a large year-over-year first quarter 2019 increase in Oil & Gas adjusted EBITDA margin rate and this was due to the benefit of higher margin small project activity and a non-recurrence of lower margin large project cost reimbursable activity.

That said, it is important to note that this performance marks the third consecutive quarter of Oil & Gas segment adjusted EBITDA margin rate approximating 15% or better, which is representative of this segment's performance potential.

We continue to experience diversification in number of projects, size and geographic concentration and now expect 2019 Oil & Gas segment annual adjusted EBITDA margin rate will approximate 15%. First quarter 2019 Communications segment revenue was $613 million, a 2% decline compared to $627 million last year.

As we previously communicated, last year's first quarter Communications segment results included approximately $75 million in higher margin Puerto Rican storm restoration services, which makes year-over-year first quarter comparisons difficult.

First quarter 2019 Communications segment revenue includes a low 20% year-over-year increase in wireless and wireline fiber services.

First quarter 2019 Communications segment adjusted EBITDA margin rate was 7.4% generally in line with our expectation with margins negatively impacted by previously communicated ramp-up cost related to crew capacity initiatives.

In summary, conditions in our telecommunications end market continues to accelerate at a rapid pace creating a major growth opportunity for MasTec and we are investing capacity growth this year to maximize our potential next year and beyond.

We expect Communications segment adjusted EBITDA margin rate will improve throughout the year with second half 2019 Communications segment adjusted EBITDA margin rate approximating 9.5%. This incorporates continued crew capacity initiatives given our strong view of necessary resources in the coming years.

First quarter 2019 Electrical Transmission segment revenue was $95 million, a $19 million decrease when compared with the first quarter of 2018. And segment adjusted EBITDA was approximately $4 million, or 4% of revenue. The same as last year and in line with our expectation.

We continue to experience active large transmission project bidding activity that we expect will set this segment up for sizable growth opportunity in 2020. First quarter 2019 Power Generation and Industrial segment revenue increased approximately 61%, compared to the same period last year to approximately $189 million.

First quarter 2019 Power Generation and Industrial segment adjusted EBITDA margin rate was 1.7% compared to 4.1% reported in the first quarter of 2018, due to first quarter project start-up delays and inefficiencies that are expected to normalize during 2019.

We continue to experience a very active renewable power bidding market, as evidenced by our record first quarter segment backlog and continue to expect that this segment will show annual 2019 revenue growth in the 30% to 40% range with annual 2019 segment adjusted EBITDA margin rate approaching 2018's levels.

First quarter 2019 other segment equity and earnings from our equity interest in Waha pipeline operations was approximately is $6.3 million and we continue to anticipate that this investment will generate approximately $24 million in earnings in 2019.

Now I will discuss a summary of our top 10 largest customers for the first quarter 2019 period as a percentage of revenue. AT&T revenue derived from wireless and wireline fiber services was approximately 17% and install-to-home services were approximately 6%.

On a combined basis, these three separate service offerings totaled approximately 23% of our total revenue. As a reminder, it is important to note that these offerings while falling under one AT&T corporate umbrella are managed and budgeted independently within that corporatization giving us diversification.

EQT Corporation and Energy Transfer affiliates were each 6% of revenue consisting of multiple projects and reflecting expected lower levels of first quarter year-over-year large-project Oil & Gas activity. Kinder Morgan was also at 6% of revenue. Verizon Communications was 5% reflecting both wireline and wireless project services.

Phillips 66 affiliates were 4% and Iberdrola Group, Duke Energy, Plains GP Holdings and EPIC Midstream Holdings were each at 3% of revenue.

As mentioned earlier, our 18 month backlog as of first quarter 2019 reached approximately $8 billion, a $310 million sequential increase when compared to year end and a $449 million increase compared to the same period last year.

First quarter booking activity was driven by strong bookings across multiple segments and included a reduction in electrical transmission segment backlog for non-storm related Puerto Rican Electrical Transmission hardening services.

While we have now fully eliminated all Puerto Rican services from our backlog, we continue to be well positioned to obtain future Puerto Rican services once governmental approvals are finalized. In summary, our 18 month backlog level as of first quarter 2019 was both a first quarter and an all-time record.

This supports our optimism regarding the strength of our end markets with sizable multiyear growth opportunities. Moving on to the topics of liquidity, cash flow, working capital and capital structure.

We ended first quarter 2019 with net debt defined as total debt less cash of approximately $1.59 billion, which equates to a comfortable 2.1 times both leverage ratio. We also had ample liquidity of approximately $400 million.

As we have previously noted, our long-term capital structure is solid with no -- with lower rates and no significant near-term maturities. We continue to expect that are annual 2019 cash flow from operations will reach a new record level over the $530 million reported in 2018 with free cash flow in excess of adjusted net income.

Assuming no further acquisitions or share repurchase activity in 2019, we expect to end the year with $1.1 billion to $1.2 billion in net debt, ample liquidity of $800 million to $900 million and a book leverage ratio of 1.4 times to 1.5 times.

During the first quarter of 2019, our debt level increased by approximately $200 million with the majority of this increase due to first quarter cash outflows related to acquisitions and capital equipment additions. While first quarter DSOs are usually elevated due to seasonally lower revenue levels.

Our first quarter DSOs were slightly higher than expected at 104 days compared to 96 days in the first quarter of 2018. With this increase due to timing of collections on ordinary course Oil & Gas project collection activity for which we've significant ordinary course collections since quarter end.

During the first quarter 2019, we repurchased a small number of shares. Since the beginning of 2018 through the first quarter 2019, we have repurchased 7.2 million shares at a cost of $320 million.

We entered the second quarter with approximately $129 million in open share repurchase authorizations, as well as continued confidence in a growing demand level for our services and a commitment to generate long-term shareholder value through opportunistic share repurchases.

Regarding our spending on equipment, first quarter 2019 net cash CapEx defined as cash CapEx net of equipment disposals was approximately $26 million with an additional $40 million of equipment procured under finance leases.

While, we continue to evaluate our CapEx view given our significant end market expansion opportunities, we currently expect 2019 net cash CapEx to approximate $85 million with approximately $160 million of equipment procured under finance leases.

Moving to our current 2019 guidance expectation, we continue to expect annual 2019 revenue of approximately $7.6 billion. We are increasing annual 2019 adjusted EBITDA guidance by approximately $15 million to $795 million and increasing our 2019 adjusted EBITDA margin rate by approximately 20 basis points to 10.5% of revenue.

We are also increasing our adjusted diluted earnings per share guidance expectation to $4.55, a $0.21 increase from our prior expectations inclusive of the benefit of lower expected 2019 income tax rates. As we have previously provided color on 2019 expectations at the segment level, I will now cover some other guidance expectations.

We continue to expect that annual 2019 interest expense levels will approximate 1.1% of revenue, annual 2019 depreciation and amortization expense will approximate 3.2% of revenue and annual 2019 share count for diluted earnings per share will approximate 75.8 million shares, with all of these metrics including the impact of period date share repurchases and acquisition activities.

We are slightly reducing our annual 2019 GAAP and adjusted income tax rate expectation to approximately 26% compared to our prior expectation of 27% due to the benefit of changes in mix of our foreign operations.

We currently expect second quarter 2019 revenue of approximately $1.8 billion with adjusted EBITDA of approximately $200 million and adjusted diluted earnings at approximately $1.11 per share.

Our second quarter '19 expectation includes a sequential increase in Oil % Gas segment revenue levels with continued strong adjusted EBITDA margin rate performance that approaches our first quarter 2019 level, as well as second quarter 2019 Communications segment sequential improvement in adjusted EBITDA margin rate due to continued but lessened crew capacity ramp-up cost pressure.

In summary, we're off to a great start in 2019 and look forward to executing on numerous multiyear growth opportunities our market support us. For substantial growth in 2019, 2020 and beyond. And this concludes our prepared remarks and we'll now turn the call back to our operator for Q&A.

Operator?.

Thank you. [Operator Instructions] And we will take our first question from Noelle Dilts with Stifel. [Operator Instructions] And Noelle, your line is open..

So first just starting with Oil & Gas profitability, if we go back to last year and you guys were talking about 2019, you were kind of talking about more like 13% margins now we're at 16% for the year.

Can you just give us a feeling for how much of that is related to mix facing more of the kind of the higher margin, midstream work in the non-union territories or how much is better contract terms pricing etc? And really where do you think that could go over the cycle?.

Sure. So I think we're executing very well right now. Last couple of quarters have been really good. We do have changes in mix that will happen throughout the year. So currently, we don't have a lot of cost reimbursable work going on in the first quarter. We're doing better on cost reimbursable work, we're making higher margins.

So as we begin to do more cost reimbursable work through the balance of the year which we will, margins will moderate somewhat. But we're confident, we're going to deliver 15% margins are better, the market is extremely good right now, extremely active and we're doing very, very well..

And then shifting over to Communications, I appreciate the comments here. It sounds like you're very optimistic about the market. Can you just help us understand a little bit -- in a little bit more detail how you're thinking about the timing of what you might call true 5G.

So when you look at that 20% growth this year's in wireless and wireline, is that a way to parse out? How much of that is coming from FirstNet or more traditional work versus 5G acceleration? And then, the associated question I have there is, you talked about adding 50% to your crew capacity given your expectations for the market, do you still feel like this is the right level?.

Sure. So a couple of things, I think relative to 5G the work that we're doing in 2019 is fairly limited. I think there's obviously 5G deployment going on. But nowhere to the scale that it's going to ultimately reach. So the real opportunity in 5G is not 2019, it's going to be '20, '21 and actually beyond that.

So I think we're seeing very early stages of 5G in '19 from across a number of different customers. I think there is going to be a lot of different customers that play into what 5G ultimately becomes. But I don't think our performance in 2019 is being significantly driven by 5G on the wireless side.

There is fiber related to 5G going in the ground today, which is a precursor to that and has all to do with wireless backhaul. But again, encouraged, we're at very early stages of the market.

We're gearing up for what we think is going to be an incredible run and we'll start to see it in '19, but by no means we'll be anywhere near full capacity in 2019..

[Operator Instructions] Great. Thank you. And we will take our next question from Alex Rygiel with B. Riley FBR..

I think one of the most interesting things about the quarter is the diversification of the Oil & Gas business.

Can you talk a little bit about how much of that activity is what you would call more day-to-day and therefore reoccurring long-term in a really solid base business? And then, can you also comment on the outlook for Canada these days in the Oil & Gas business?.

Sure. I think the Oil & Gas business is really changed in the last five years or so, since we've really have been in the business in a major way. I think the cyclicality that was normal in the business. We're not going to see to the same levels that we've historically saw.

I think it's going to be a much less cyclical market because there is so many different types of work that have to happen in so many different demands and needs from the customer chain from top to bottom be a producer to midstream companies.

So I'm highly encouraged that a lot of the things that we do today are a lot more recurring in nature than they have historically been. Obviously, we're going to be bigger projects. And those -- there will be times, where there will be a lot of those and times where there is not.

But I think, in the first quarter, we were able to demonstrate without any one significant project, how we can perform on both the top line and a bottom line perspective and we're proud of that. With that said, we are going to start, we're back, we reramped up on our big projects in the second quarter and it's going to be a big part of our year.

But we're highly confident in our ability to maintain really high levels of revenue in the Oil & Gas business for a loan time. We talked in our community today about our visibility into 2020.

Remarkably, we're at a very high level of commitment for 2020 already which is unbelievable and in a position we've never been in this far out and we're starting to talk about 2021 projects. So it's amazing.

The second part of your question, Alex?.

It was about Canada..

It's getting better. We're seeing a lot of activity. There is a lot of bidding activities that's happening in Canada. Canada went through a long period of time with a lot of work. So there is a lot of contractors that have a lot of capacity and people were starting to fill it.

We need some of that to get full surprise can come back to the reasonable levels. But today, it's an improving market. We're doing a little bit better there. We expect to have a much better year in '19 and the one we had in 2018. So think it's trending in the right directions.

Obviously, the elections here recently we think are going to be a big deal and really help and we'll see. But we're much more encouraged than we've been in the last few quarters with what's happening in Canada..

And to follow up your acquisition at Kingsley in the first quarter.

Any thoughts now that you've owned it for a couple of months?.

Yes. We're just -- we're really just getting into integration of them and getting to fully know. They generated just over $30 million of revenue in the first quarter. They've got a lot of jobs that are starting up now. Quite frankly relatively slow first quarter, relative to what they've historically done. I think it's an incredible business.

I think the diversity of things that we do in that business really adds a lot to our mix and it really changes the client profile that we can go after and all of those clients to other things, other than just water management. So it's really giving us the ability to cross sell our services within those customers.

And then to cross sell their services with customers that we have that they traditionally didn't work for. So we think it's going to be a great growth business for us. We're excited to have them on the team and looking forward to really get them going..

Our next question is from Andy Kaplowitz with Citi..

Jose, if you've been bullish about Oil & Gas before for the long term, but the commentary you just had about capacity is pretty committed in 2020 is quite interesting.

So I just want to follow up on what that means? Does that mean, at this point, you think you have good visibility into growth in '20s in Oil & Gas? And is that, at the mix of Q1 meaning diverse mix of projects or maybe it's because you have several large projects that are basically committed at this time?.

On a fully basis in 2020 with what we noted, I think we have a very diverse mix -- a more diverse mix than we've historically had, which I think is also somewhat positive.

And I think when you think about growth one of the knocks on our stocks for a long time is, are we going to be able to maintain current levels of Oil & Gas or roll on cycle, I think we've not demonstrated that. I think we're not talking about having that visibility a year out, which completely changes the profile of our Company.

With that said our job is to grow, our job is to continue to look for new opportunities within the industry. We think we can do that. Obviously one of the major issues in this business that we've been managing through and we think we've done a phenomenal job of managing through it, is the regulatory in environmental delays.

So how that plays into the work load in 2020? It's going to determine how much growth we can have or not have versus 2019. But today, we sit here saying that with taking all that into account. We feel really good about 2020. And if things fall our way, it's going to be an unbelievable year and again, we're in May or year before right? So it's amazing..

Thanks for that, Jose. And then shifting to Communications. We know you guided last quarter to high-single digit EBITDA margin in the first half of '19. When you look at the margin in the quarter, it might have been a bit weaker than we were thinking and you have this new guide of 95% margin in the second half of the year.

So how confident are you in the snap back in margins? I mean adding a 1,100 wireline technicians, it's hard right? There is a bunch of inefficiency that's created.

So how confident are you that the 7.4% is the low point here for the year?.

I'm highly confident. We have two issues right? The first is, we're in a aggressive ramp and that's expensive and we know it. And we know that we're investing for the future. It's not an investment for 2019.

It's an investment for 2020 and beyond because, what we see happening is really -- is dramatically bigger than what our initial expectation we're going into this build right? I think 5G is going to be bigger than anybody can imagine and we're really trying to prepare ourselves in a smart and reasonable manner to execute on that and get our fair share of that and hopefully our outside share of that.

In addition to that, it's not the only thing happening in Communications margins right? We've got mix changes happening. Our installed business continues to decline. Our wireline and wireless business are grown really nicely.

On our major fiber projects a lot of the work that we are doing today is a lot of the pre-construction services, right? It's the engineering, the permitting etc. There has been plenty of stuff talked about it, how difficult that's been over the course of last year.

I think we're doing really well relative to meeting our customers' demands and schedules. But it's expensive right? Resources, it's not a typically a function that we stopped performed over a long period of time. So resources out there are expensive, vendors are expensive. So when you look at a lot of the work that we've done to-date on those projects.

We're really not making a lot of money on them. We're just trying to deliver for the customer. When that work turns into construction, which is happening here shortly, that's when we're going to get our business.

That's when we're going to do, what we do well, I think the margins will follow and I think that's going to really help our overall business margins. And today that's dilutive to the group margins -- to the segment margin, but it's not going to be for long.

So I feel really good about why the margins are going to change? How they're going to change? And ultimately, which we've said all along, when we look beyond '19 or into 2020 and 2021, I feel strongly that we're going to get to the historical high level margins in this business..

We will take our next question from Adam Thalhimer with Thompson Davis..

Jose, can you give some additional color on the verbal pipeline awards? And I'm just curious whether those are union or non-union, some color would be good? Thanks..

They encompass both. So we've been awarded a lot of projects on both union and non-union jobs for 2020 and for late 2019. And you'll start seeing them come into backlog soon. But again, when we can talk about being very committed for 2020 obviously, those are big numbers that are going to drive backlog in future business..

And then, I wanted ask on the Communications slide about AT& T. So the core wireless and wireline business was only up 3% in Q1.

Do we still think that accelerates into the back half?.

Yes. So we got a -- again it was a tough comp quarter because there is a lot of moving parts. If you back out the storm restoration work that we did in the first quarter of 2018, which had a lot of different pieces to it, right, because we had a lot of work in Puerto Rico, there was a lot of other things happening.

If you actually take that out, we didn't really have a lot of storm revenue in the first quarter of 2019. And you look at the business in pieces which I think is important because that's how we have to manage to it right? Our wireline and wireless business in the first quarter was up 23%. Our installed business was down.

It was down in the low 20s on a year-over-year basis. For the year, when think about it, we think our installed business is going to be down roughly 15% on a year-over-year basis. And our wireline and wireless business will be north -- up north of 20% on a combined basis. If you average it all out, we have low teen growth in our Communications segment.

So you almost -- you have to bucketize the businesses because that's obviously how we're managing them and that's how we're looking at our growth potential and our opportunities on a go-forward basis..

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

This is George Kasiaras on for Chad. Thank you.

Just wanted to see if there was any significant impact that comes from the weather this quarter and how -- if so what the impact was?.

Yes. Thanks, George. Look, I mean there was areas of the countries that didn't have the weather issues. There were areas of the countries where weather impacted it. We were impacted in some business -- some business more than others.

I think we've got to be prepared for weather and we don't we talk about it a lot because it's our job to manage through it. So was there some impact? Yes. Was it meaningful? No..

We will take our next question from Bill Newby with D.A. Davidson..

Jose, just back on comp.

As you guys expect the ramp through the back half of this year I mean I guess, one, do you still expect that you can build backlog through the end of this year? And I guess just in general how do you think about the overall capacity of your comp business as we get deeper into this build?.

So the question is yes. No, the answer is yes, we do expect to build backlog through the balance of this year. We haven't really given long-term guidance around what we think our revenues and communication could be. Obviously, our commentary is really positive We think we're going to grow a lot. And I think we'll be in a position to do that.

There is so many moving pieces. There are so many different customer demands and requests. I think we're going to continue to have solid double-digit growth for the foreseeable future. But I do think, we'll probably give better color and guidance in quarters to come..

And then just maybe a little bit of more help in Oil & Gas. I mean, I guess given the guide and what you guys are expecting to do this first half in margin that does suggest that a pretty healthy step down from these high levels in the second half.

I guess what -- any help with -- is that just a change in mix? What are the moving pieces there?.

So yes, right, we -- a lot of the job that we are doing today don't include cost reimbursable. So the first and second will have a very small component that, which is accretive to margins and then as we get into the heavy part of that built, it will be slightly dilutive to margins.

So on a full year basis, we expect to be 15-ish first and second quarter should be somewhat similar, which means you're getting down to just below 15% for the third and fourth quarter. And I think, when we think about that right and we talk that through, it is a conservative estimate we understand that.

But there is also, a lot of noise out there right? There is project that we expect to have completed in 2019 that are now pushing into 2020. There is projects we expected to start, which have now pushed to 2020. We've embedded all of that in guidance.

So I think today, we have a really conservative view of our second half of the year relative to Oil & Gas business, if things play out a little differently, if we get a little lucky. It's going to be much different story when we actually give our actual results. But I think it's the best look that we have today.

And again, it would be a great year, if we delivered on what we're seeing today and it is somewhat conservative. So we feel good about it..

We will take our next question from Tahira Afzal with KeyBanc Capital Markets..

This is Sangita stepping in for Tahira.

So In terms of the 5G rollout can you walk us through some of the initial milestones that we should be tracking because I understand that there are a lot of moving parts here, but commentaries on the responses as well, so that would be very helpful?.

Every carrier is approaching it a little bit differently. I think for the most part everybody is doing some form of fiber related activity. So in some cases, the carriers are doing interact and other cases, the carriers are contracting it out of backhaul carriers who are then building out networks on their behalf.

I think everybody is starting to do a little bit of macro, a little bit of small cell, but I think we have just a very initial coverage area that's happening for the most part across the industry. And that's going to build right? So we're -- again, it's very early.

There is 5G related activity going on, but it is limited and it will pick up significantly as we think about 2020 and beyond..

That's very helpful.

And my next question is, can you tell us a little bit about how the work ramp is going for your tower climber as we plan for the rest of the year?.

So we are continuing, we are -- tower crew is perspective, we're trying to add about 250 people a quarter. We are planning to do that through the balance of the year with significantly increase our tower crew capacity, which we think is going to be really important going into 2020.

So far, we've been able to deliver that in the fourth quarter and the first quarter. There's going to be challenges with that. It's going to take time for those people to become proficient. And we've opened up training centers. We are working hard. We think we have got a state-of-the-art plan and facilities and course that we're running.

And we're looking forward to getting those people out and about and working and being constructive numbers of our team, which I think is going to happen in the second half of '19..

We will take our next question from Jamie Cook with Credit Suisse..

This is actually Kevin Wilson on for Jamie. On electric transmission you've talked about large transmission project bidding activity with growth really coming in 2020.

Can you give us any sense of how large the opportunity could be here? And then longer term what is the right mix of larger versus smaller projects for this business? And is there a potential for margins to eventually reach the rest of the portfolio?.

Sure, so today just about everything we do is small projects. So all of our revenue that we've been generating for the last couple of years has been primarily driven off the smaller projects. We won a number of larger projects most of which is not in backlog. Some of it because it's beyond 18 months. So we only cover 18 months of backlog.

So we have a couple of hundred million dollars in actual awards that have been signed that we'll be hitting backlog soon because we will got into that 18 month window. We've got others that we've verbally awarded also a couple of hundred millions that we think we'll be hitting soon.

So when we look at backlog, we see what we've reported in backlog when we look internally. We think our backlog is dramatically higher than what's reported. And we think that will start playing out in 2020 as those projects get into construction phase.

We think that business is going to do really well both from a capital perspective and margin perspective as we start 2020. Again, we think it will be slightly better in '19 than it was in '18. We have picked up some recent work here that is more of a quicker start in the last few weeks. So we're confident in what we're doing. It's a good market.

We think we're well positioned. It just haven't showed up in our financials yet and I think it will soon. And I think we're doing everything right and headed in the right direction..

And then following up on Communications.

Can you tell us maybe how much of the ramp up costs are labor related versus other costs? And then I guess what is your confidence that these investments will enable you to execute on contracts that are increasingly more complex and diverse versus simply construction work?.

Sure. So the bulk of the cost of training is labor obviously. There is bunch of intangibles associated with taking people to the centers, where we're actually doing the training, the training staff, the people that are employed doing the training.

The bulk of what we are tracking is just the labor cost associated with the individuals, as they train and then for the first few months as they are out in the field whether less productive than they optimally would be. Look, we're highly confident in what we are doing.

We're training for very specific functions that we think are the functions that are going to be needed and required in the roll outs to come. We've done this before. We think it's really important to control the resources.

This is going to be really tight labor market in the next couple of years and we want to be the leading self performed contractor in the nation which we think we already are, but we need to kind of put that on steroids. So again, we're making what we think are very sound investments, we've been talking to our customers about it for a long time.

We constantly talk about them. This is a very broad-based initiative that is not to support one customer, but it's to support multiple customers that are going to have significant needs. And we think this investments is going to really pay off well for us..

We will take our next question from Scott Levine with Bloomberg intelligence..

So wanted to talk about Power Gen and Industrial, you talked about a lot of different areas that you're involved and active when you seen huge growth in backlog last couple of years.

Could you elaborate little bit more in the mix of work that you're doing in there? And do you see potential to continue to grow backlog and maybe grow additionally into 2020, given what you see right now?.

So I mean just a couple of years ago, it was a $300 million business last year we did about $660 million. Tremendous growth this year, we're talking about doing somewhere in the $900 million range. So we've had tremendous growth in the last couple of years. Historically that's been a wind construction business for us.

That's what the business was doing for a long time. Today it's much more diversified. We still do a lot of wind. It's still a big piece of our business. We're doing a lot more wind repowering today which I think it's going to be a huge piece of our business on a go forward basis. We're now much more active in solar than we've ever been.

We won a couple of larger solar projects here recently that we're excite about. We're doing a lot of facility work and everything from building our compressor stations in the Oil & Gas markets, doing biomass facilities. We're doing some civil construction with water infrastructure associated with that.

We're doing some specialized vertical construction. We're doing metal buildings, lot of them associated with the current projects that we're working on, but there is opportunities outside of that.

So again, I think we've done just a fabulous job of really diversifying that business getting into sectors that I think are much less cyclical than the rest of our business or at least the different type of cycle. From a margin perspective, done great work during the last couple of years.

It was probably a business that was more impacted by weather then some of our other businesses based on their geographies. But we expect margins to be solid this year close to where they were last year in the high growth environment. It's a great story..

And as a follow-up, you guys bought a backlog stock last year. So that the 1Q buybacks were certainly at a lower pace.

Is that a function of the cash flow seasonality? Maybe some thoughts with regard to the buyback how active you intend to be here or general thoughts on -- its importance relative to growth in some other areas for capital allocation?.

Sure. We're very optimistic about our cash flow generation for the year. We're going to have a record cash flow year. I think we've always said that our stock buyback initiative is opportunistic in nature.

With that said, we still feel, we're undervalued relative to our future earnings potential and the valuations in the multiples that we currently trade at, so it's something that we're constantly evaluating. We're looking at all different types of opportunities be it, growth of our internal business and executing on our organic growth opportunities.

We're looking at acquisitions today. So we're trying to determine where to best use our capital with the highest returns are available to us and I don't that's changed or will change in the near term..

We will take our next question from Blake Hirschman with Stephens..

I think you said Verizon came in about 5% of sales for the quarter, so which is the nice step up in AT&T looks like they have pretty steady maybe pick up a bit.

Just kind of looking to see how we should think about customer mix going forward with the 5G cycle expected to heat up here in the coming quarters?.

Sure. AT&T is a mix obviously on the wireless side it's growing. It's obviously shrinking little bit on the install side probably stable on the wireline side. Verizon is growing as a customer for us as we continue to roll out.

The fiber initiatives, I think you're going to see some of the customers that didn't make into our top 10% but had nice growth like T-Mobile. There's a lot of independent companies out there building fiber networks too that I think we are picking up a lot more work for.

So I think our customer base is diversifying even though it may not show up in our top 10 and we're pretty excited about that..

Thanks and then just also on Puerto Rico I believe everything down there has been taken out of the backlog now just kind of looking to give state of the union there and how should we thinking about the longer-term opportunity in potential timing? Thanks..

Sure. So on Puerto Rico just may be refresh, we were awarded a $500 million contract last year. It's was publicly announced by the authority in Puerto Rico, which was the reason that we announced it and put it in backlog. At the time, the project was fully funded for lots of reason, political reasons the money never made out of the island.

So that work really never kicked off although we had multiple times, we felt it was imminent. We've taken it at a backlog. It's pretty funny we took it out of the backlog and since then we've received our first work order to start working in Puerto Rico with a small job less than $10 million, but it is a start. There are significant needs down there.

There is a lot of work going on between the local government and the federal government and talking about funding and how it's going to happen. At some point, I think there will be funds that are established and released on island for work. We're incredibly well positioned.

Lot of other things going on in the island too from both Power Generation and Communications that we have been somewhat active in so, still a decent market. One that we've got our eye on. We've got a good position there, if it comebacks. They still -- their needs haven't changed.

They have to spend billions of dollars at upgrading their infrastructure, if another hurricane comes during this hurricane season. It could really be devastating. So we'll see, we're there. It's a good opportunity and one that we constantly track and monitor..

We will take our next question from Chip Moore with Canaccord Genuity..

Hey, Jose.

You talked about infrastructure spending, that is what it appears to be finally at least some bipartisan agreement on a $2 trillion bill, obviously, a long way to go, but would be curious to get your high-level thoughts about how this can play out?.

I think it's amazing, obviously I'm not betting on a bill being agreed upon or anything being passed because I think as you said there is a long way to go there, but just the conversation alone is really important for our industry.

I remember for ever every time this has been brought up, everybody assumes this roads and bridges and today like we said in our prepared remarks people are talking about broadband.

They are talking about 5G, they are talking about water infrastructure and most importantly, they are talking about the issues associated with actually building projects and environmental and permitting delays and the bottlenecks that we had, both sides both public and democrats are acknowledging this and talking about it and trying to find ways in which to make this easier.

The administration bid put up some executive orders that we think will be helpful for our industry over the mid to long term. This debate is important. It's important to have right. We're not -- we view ourselves as stewards of the environment.

Our industry is that we're in get such a bad rap relative to the environment and yet, our employees that build the things that we built, they live of the environment. They live in rural areas. They grew up on farms. They grew up and it's very important to them. And I think that message gets lost.

As we talk about an infrastructure build and other things that are crumbling on our own country and all the investment that we need to make it creates opportunities for companies like ours. Today, we're much more diversified and we're in much better place and to take advantage of any work might come from it.

Historically, doing what we did might not have been as effective by an infrastructure build. Today, if that actually passes a lot of our businesses are going to be impacted in a very positive way.

And I think that will -- I think it could be great for our Company maybe not in the next couple of years but as we look at three, five years I think it's going to be fantastic for MasTec..

We will take our next question from Andrew Wittmann with Baird..

Great. Thanks for taking my question. I just wanted to make sure that George isn't sleeping there. So I want to give him one this time. Jose sorry..

I've been jumping Andy, but go ahead..

The unbilled receivables are obviously down a lot over that third quarter level due to the cash flows that we had in the last couple of quarters even down sequentially here, but they might also be considered somewhat high still.

I'm just curious as to what's in there today, George? And what's your outlook is there? If we should expect that to increase or decrease as this year plays out recognizing that you do still growth anticipated in the business?.

Andy, we talked about the fact of our DSOs the first quarter a little bit elevated. They are usually higher than normal in the first quarter just because you have a large decrease for sequential basis on a revenue basis. I think we dropped closed to $400 million plus from Q4 last year to Q1. Receivables don't automatically track with that.

The point we made on that was, we've had significant collections since quarter end. We don't typically -- when we're doing some of the administrative billings and process and that we do with lot of our Oil & Gas activity. We keep things in cost in excess until we have the final agreement and then we transition into billings.

So to the extent that we're going through administrative efforts to get things approved, it might stay in the cost and excess in billings line. But it's really just ordinary course receivables as we move to get approval. So there is nothing abnormal about the process. There is no significant problems in terms of collections.

We've gotten significant recites since quarter end. And we're very confident that we're going to have a record cash flow from operations over the course of the year. Our DSO profile and our working capital profile is not changing.

There is -- when you look at the DSO you are talking about a single point in time as a little bit of an abnormal calculation because you just look at a single day and time. And literally with a couple $100 million or $200 million or $300 million of receipts happening in next week after quarter end, the picture changes dramatically.

So we're very comfortable with where we are both in terms of our view of the year and in terms of our billing process and collection activity..

And then I guess Jose, one for you as well here. On the Communications, and so we don't talk about it as much anymore. It's got to be a smaller part of your overall business today for sure.

But just given the pressures on the top line and the business and the fact that is still a route-based business and does have all the fixed cost that comes with being a route.

I guess my question is what do we seen happened to the profitability of that business? How much of an impact was that to the Communications segment margins this quarter? And what else are you doing about that to make sure that the profitability levels of that business stay where you need them to be?.

Sure, so a couple of things. One I think the management team in that business has done a fantastic job of holding margins during a declining period. So margins are down, but they're not overly diluted to our segment margins. So that's a good thing.

Two, obviously it's been a negative story because it's been in what we feel is been a constant decline here for a period of time. There are tremendous opportunities in that business. And while, we definitely -- I don't talk about it a lot anymore just because we really need some wins.

We need to get some stuff accomplished and done, so that we can talk about it. I'm quite bullish I think when you think about the Internet of things and what ultimately has to happen in the home every manufacturer product is looking at a way to have a direct relationship with a consumer.

They are trying to buy pass retail and they are trying to get direct-to-consumer. And that's the holy grail of so many businesses. And nobody has been able to figure it out right? You have companies from Amazon and Google are trying to get into the space, trying to figure this out.

But quite frankly nobody has been able to figure out the services component of direct delivery to consumers other than just physical delivery. And I think, there is no better company positioned in the country from a third-party perspective with the feet on the ground and the warehouses and our ability to manage that.

And we're pushing that and there are a lot of dialogues that we're having with a lot of different companies. One of them is going to hit. And when it hits I think that business is going to go back to being a nice growth component of our business. And we're not going to give up on it.

I think it's -- I think the ultimate potential of that business is just way too big for us to -- and I think we got to see it. And maturity again right, Internet of things is early 5G is early, but when it hits, I think that business is going to have some tremendous opportunities, so we'll see..

And there are no additional phone questions at this time. I would like to turn the conference back to Mr. Jose Mas for any additional or closing remarks..

So I just like to thank everybody for participating today. Again, thank to men and women of MasTec for their contributions and their efforts and we look forward to updating you on our second quarter call in a couple of months. Thank you for participating..

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