Q3 2019 Earnings Call
Welcome to Mastecs third quarter 2018 earnings Conference call initially broadcast on November 1st.
Let me remind participants that today's call is being recorded at this time I would like to turn the call Louis Mastecs, Vice President Investor Relations.
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Thank you Savannah.
Hi, everyone and welcome to my six third quarter Conference call public statements made pursuant to the Safe Harbor for forward looking statements described in the private Securities Litigation Reform Act 1995.
Indications, we may make certain statements that are forward looking statements regarding mostek future results plans anticipated trends in industries, where we operate.
These forward looking statements or the company's expectations on the determination broadcast of this call and a company does not undertake sustain these expectations based on subsequent events or knowledge.
Yes risks uncertainties assumptions are detailed in our press releases and filings with the FCC.
More and more about 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 this communication.
In today's remarks by management.
Discussing adjusted financial metrics as discussed in reconcile Yesterdays press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference call I reconciliation of any non-GAAP financial measures not reconciled. These comments in most comparable GAAP financial measure can be found in our earnings release, our 10-Q.
In the posted Powerpoint presentations locating investors in new sections of our website located at plastic Dot com.
Today, we have Jose Mas, our CEO , George Pita, our executive Vice President and Chief Financial Officer.
Well the coffee opening remarks analysis by Jose followed by natural review from George These discussions and we followed by saying she would I agree with respect to call. The last got 60 minutes.
Record have loved for things to talk about today, so I'm not going over to Jose to get going right.
Thanks, Mark Good morning, and welcome to March six 2019 third quarter call.
Today I'll be reviewing our third quarter results as well as providing my outlook for the markets we serve.
First some third quarter highlights.
Revenue for the quarter was 2.017 billion.
Adjusted EBITDA was 252 million.
Adjusted earnings per share was $1.73.
Year to date cash flow from operations is $441 million.
Backlog at quarter end was 7.5 billion.
In summary, we had another excellent quarter and are on track for another record year.
More importantly, it seems like the number and size of opportunities continues to increase.
The CEO of rising recently said.
Fiveg technology is ultimately one of the most important infrastructures for the 21st century.
We are entering what are the most exciting periods in the history of telecommunications.
The deployment of Fiveg wireless technologies is truly a game changer for the consumer our customers and from Austin.
Do you expected by GE, capex budgets and length of the spending cycle are both unprecedented.
Over the years, we have witnessed significant changes with each evolution of technology from two GE to threeg to Fourg LTE and now Fiveg.
In each cycle Mostek has been out in front of the market developing the capabilities needing for the next deployment cycle opportunity.
We have always remained on the cutting edge of capabilities and this much larger and longer cycle is no different.
Today, we are pleased to announce the during the fourth quarter, we acquired quadrant wireless margin is a company focused on wireless engineering.
Network integration and optimization using their proprietary software tools.
Through this acquisition, we are adding 600 engineers located both domestically and abroad, which uniquely positions mostek as a true end to end provider of wireless services.
Fiveg significantly enhances the number of opportunities for mostek based on the total number of network elements involved.
Each of those elements added requires significant construction activity.
Historically, I think mostek has always been viewed as the muscle behind the networks, we do the physical work that helps these networks perform.
With our added resources it enhances the services, we can add around what I'll refer to as the intellectual services.
We are now truly a brain and muscle operation.
The reason I bring this up is that in addition to the incremental opportunities available to us in the U.S. market.
We have historically had a very difficult time selling wireless services internationally since the majority of our services rely heavily on labor, which is typically a local product.
Our expertise on deploying wireless services, coupled now with our ability to do extensive front end work in conjunction with the optimization and data maintenance allows us to sell these services across any carrier or geography.
Our engineering teams in both the U.S. and abroad.
Based on how much denser a fiveg network is the level of activity required to deploy those networks around the world is unparalleled.
Our reputation.
History, and expertise uniquely position us to be a leader in fiveg deployment.
We also feel we're incredibly well positioned for the long term maintenance opportunities.
This cycle won't just be about the initial deployment, but will also be driven by the increase maintenance requirements of a bigger more dense complex and evolving network.
In the near term, we continue to ramp resources as we prepare for the future.
We expect strong growth in the years to calm with significant margin improvement as we reach full scale and utilization.
We are also anxiously awaiting the completion of the T mobile sprint merger.
T mobile sprint and dish network, all have significant build plants.
While the build plans are not contingent on the acquisition.
Each company has a different plan if the acquisition happens or does it.
This dynamic has resulted in a slower second half of 2019 across the industry.
Once the freedom that acquisition is decided we expect our industry will quickly see a significant increase in demand.
We also expect wireline demand to continue to increase.
These new future networks will be supported by fiber and we have a number of customers from telcos and misos to independent fiber operators that are aggressively building out in support of these networks.
We're happy to announce that during the third quarter, we were awarded approximately $700 million and new fiber awards.
Moving to our oil and gas segment, we had another very strong quarter that could have been better.
Revenues were impacted by regulatory delays on one large project and that delay will also impact fourth quarter revenues.
Despite distillate margins were strong and we expect margins to maintain at these levels in the fourth quarter.
We are enjoying strong broad based performance across our long haul and midstream projects.
Integrity work utility main replacements and facility and facility construction.
We have improved diversification or talk to customers made up less than a quarter of our revenues versus 40% last year, highlighting the diversity of our customer mix.
We have solid visibility with approximately 800 million a revenue being pushed into next year by our large project delay coupled with a significant amount of work verbally awarded but not side.
This sets the stage for what we expect to be another great year for oil and gas group in 2020.
While the backlog number at Q3 was not a record levels. When you take into account the Burble awards not yet sign.
We have never had better visibility in that segment than we do today.
We're also encouraged by the number of opportunities we're seeing beyond 2020.
Despite commodity price fluctuations, we continue to see a very robust oil and gas market for years to come.
Our transmission group had another solid quarter.
Well, we were expecting 2019 to be more of a transition year, leading into what we believe will be a very strong 2020 in this business.
The last couple of quarters have been better than we were expecting.
Margins have been improving and we expect that trend to continue into 2020.
Market conditions are strong and there are number of catalyst driving the business, including the shift to clean energy.
Grid enhancements, including Undergrounding in specialty in light of the natural disasters across the country.
In general spending around replacing and strengthening the aging infrastructure.
We feel great about our prospects and expect strong backlog growth over the next few quarters.
Our power generation group also delivered strong revenue growth.
Revenues grew 46% from last year's third quarter.
Since 2017 revenues from our power generation group have more than tripled from 300 million in 2017 to almost a billion this year.
With nearly a billion dollars in backlog and a number of expected awards 2020 should be another year of strong growth.
Margins have been impacted by our high growth.
We have added about 1000 team members since year end in our Powergen segment from a base of about 1300.
Almost doubling our workforce this year.
We expect this segment to return to mid to high single digit margins next year.
To recap, we're having a great 2019.
Our guidance for 2019 represents a 17% increase in EBITDA year over year with margins, improving a 130 basis points over that same period.
As we look forward to 2020, we truly believe we are in a privileged position as we expect all of our segments to grow next year.
While we're not ready to give 2020 guidance, we would expect revenue growth to be somewhere in the low double digit range with margins approaching this year's levels.
We expect 2019 to be another record year, a financial performance, but we're more excited about our longer term prospects.
The markets, we serve our evolving changing and growing and we're confident mostek has positioned itself to be a leader across all of the segments. We serve.
I'd like to take this opportunity to think that men and women tomasic.
For their commitment to safety their hard work and their sacrifices our people 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 third quarter financial results, including cash flow liquidity and capital structure.
As well as our increased earnings guidance expectation for 2019.
As Mark indicated the beginning of the call our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
Conciliation and details of non-GAAP measures can be found on our press release on our website.
On our SEC filings.
Here are few highlights regarding our third quarter 2019 performance.
In summary, we had better than expected third quarter earnings and this strong trend is affording us the opportunity to raise our 2019 adjusted diluted earnings per share guidance by 12 cents to new record levels, despite lower than expected second half 2019 oil and.
Segment revenue caused by regulatory delays pushing a portion of a large oil and gas project into 2020.
On the balance sheet side during the quarter, we continue our record cash flow from operations trend and extended expanded and favorably repriced our senior credit facility.
We expect record levels of 2019 annual cash flow from operations approaching $600 million through ordinary course collection activity.
The combination of these factors leaves our third quarter capital structure with ample liquidity.
Improved pricing and comfortable leverage metrics, allowing us full flexibility to take advantage of future growth opportunities.
Third quarter 2019, adjusted EBITDA margin rate increased 110 basis points compete compared to the same period last year to 12.5% of revenue.
And adjusted EBITDA of $252 million represented a new quarterly record level.
Adjusted diluted earnings of one dollar and 73 cents per share grew by 30% over last year.
Exceeding our expectation by 11 cents per adjusted diluted share.
Third quarter 2019 adjusted EBITDA.
Adjusted EBITDA margin rate, both exceeded our expectation.
Now I will cover some more detail regarding third quarter segment results.
Third quarter, 2019 oil and gas segment revenue decreased 6% compared to the same period last year slightly below our expectations, primarily due to lower revenue on a large project caused delays caused delays due to delays caused by regulatory delays that moves some second half 2019 pro.
Hi, good activity to 2020.
Third quarter, 2019 oil and gas segment adjusted EBITDA margin rate was 21.9% a 690 basis point improvement over the 15% reported for the same period last year.
With this performance exceeding our expectation due to the combination of project mix.
With lower levels of large project cost plus activity and importantly, strong project productivity on numerous small pipeline projects.
As we look forward into 2020, we have great visibility on multiple and significant project activity.
At this point until the estimated timing of 2020 project startup activity becomes clear, we anticipate that oil and gas segment 2020 revenue will grow in the high single digit range within adjusted EBITDA margin rate in the high teens range.
Third quarter 2019 Communications segment revenue increased approximately 3% compared to the same period last year to approximately $680 million.
Third quarter 2019 Communications segment adjusted EBITDA margin rate was 8.4% of revenue a sequential improvement a 40 basis points compared to the second quarter.
Third quarter 2019 Communications segment revenue trends are characterized by continued double digit growth in wireless and wireline fiber services, partially offset by continued decreases and install to the home services.
Third quarter 2019 Communications segment adjusted EBITDA margin rate performance continues to reflect ramp up costs related to fiber project startup costs and crew capacity initiatives as we continue to invest in communications segment capacity growth in 2019 in order to maximize our future potential.
We continue to expect communication segment revenue.
Adjusted EBITDA and adjusted EBITDA margin rate will show strong annual 2020 increases when compared to 2019.
Third quarter 2019, electrical transmission segment revenue increased approximately 4% compared to the same period last year to approximately $103 million.
Adjusted EBIT, but the adjusted EBITDA margin rate was 7.6% of revenue a 450 basis point improvement compared to the same period last year.
This marks the second consecutive quarter of electrical transmission segment, adjusted EBITDA margin rate in the high single digit range and we continue to expect strong revenue and adjusted EBITDA growth for this segment in 2020 and beyond.
Third quarter 2019 power generation industrial segment revenue increased approximately 46% to $262 million.
Adjusted EBITDA margin rate was below our expectation at 0.9% of revenue primarily due to adverse weather impacts on selected project activity as well as some operating inefficiencies related to managing a year to date 2019 growth rate approximating 60%.
We continue to experience a very active market in renewable project activity as evidenced by record power generation Industrial segment third quarter 2019 backlog levels that approach $1 billion.
As we look towards 2020, we expect this segment will continue to show revenue growth in 2020, coupled with improved adjusted EBITDA margin rate performance in the mid to high single digit range.
Now I will discuss a summary of our top 10 largest customers for the third quarter 2019 period as a percentage of revenue.
18, Ti revenue derived from wireless and wireline fiber services was approximately 14% and install to the home services was approximately 4%.
On a combined basis. These three separate service offerings totaled approximately 18% of our total revenue.
As a reminder is important to note that these offerings, while falling under 118 T. corporate umbrella are managed and budgeted independently within that organization, giving us diversification within that corporate universe.
Equitrans Midstream Corporation was 17% compared to 28% last year.
Reflecting lower activity levels, when a large oil and gas project as previously discussed.
And you transfer was 7%.
Phillips 66 epic pipeline and Verizon were each 5%.
And Kinder Morgan even draw the southern company, and Nextera energy, where each at 2%.
Individual construction projects comprised 68% of our third quarter 2019 revenue with Master service agreements comprising 32% and this mix reflects the trend over the past year or so of higher levels of large project activity.
18 month backlog as of the third or 2019 was approximately $7.5 billion, a 3% sequential decrease when compared to the second quarter and a 4% decrease compared to the third quarter last year.
Notable backlog activity during the third quarter includes a strong sequential increase in power generation and industrial segment backlog and an approximate 700 million dollar sequential increase in total backlog beyond 18 months, driven primarily by significant communication segment awards during the quarter.
Thus, while third quarter 2019 Communications segment 18 month backlog showed a small sequential decline.
Total communications segment backlog increase substantially during the third quarter.
As we were awarded significant project awards for which work is expected to be perform beyond the reported 18 month backlog period.
It is also important to note that 18 month backlog last year included approximately $500 million of Puerto Rican storm restoration services with $250 million each in the communications and electrical transmission segments that ultimately never led to revenue generation and us.
Duly impacts year over year, 18 month backlog comparisons for those segments.
Lastly, it should be noted as weve indicated for years.
Backlog can be lumpy as large contracts burn off each quarter and new large contract awards only come into backlog at a single point in time.
And this trend is evident in our third quarter 2019 oil and gas segment backlog.
In summary.
Our backlog performance and trends support our optimism regarding the strength of our end markets, which are exhibiting sizeable multiyear growth opportunities.
Now I will discuss cash flow liquidity working capital usage and capital investments.
Our long term capital structure is solid with low rates and no significant near term maturities.
During the third quarter, we took advantage of favorable market conditions and increased our senior credit facility by $250 million further increasing our ample liquidity.
Liquidity is defined as cash on hand with borrowing capacity.
And this level now stands at approximately $1 billion.
I would like to take this opportunity to thank the members of our bank group for their continued support and partnership.
We ended our third quarter with net debt defined as total debt less cash of approximately $1.27 billion.
In a quarter and leverage book ratio of 1.5 times.
In summary, we expect that 2021.
With a strong capital structure and ample liquidity that should give us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value.
As of the ended the third quarter, we had approximately $129 million remaining on open share repurchase programs.
With regard to our 2019 cash flow performance, we continued our strong performance trends during the third quarter.
And year to date 2019 cash flow from operations of $441 million represented a record level from our stuck.
We ended third quarter with Dsos at 82 days within our stated target range.
We continue to expect that annual 2019 cash flow from operations will reach a new record level approaching $600 million and that 2019 free cash flow defined as cash flow from operations less net cash capex will once again exceed adjusted net income.
As a reminder year to date and expected annual 2019 cash flow performance metrics are based on ordinary course billing and collection activity.
Regarding our spending on equipment during the third quarter of 2019, we purchased approximately $20 million in net cash capex defined as cash capex net of equipment disposals.
And we incurred an additional $53 million and equipment vendor finance leases.
We expect that for the full year 2019 period, we require approximately $90 million and net cash capex and also expects to incur approximately $190 million to $200 million in equipment under finance leases.
Moving to our current 2019 guidance, we now expect full year 2019 revenue of $7.2 billion.
Based on our strong earnings trend, we're increasing our annual 2019, adjusted EBITDA guidance to 842 million billion dollars or 11.7% of revenue.
And our adjusted earnings guidance to $5.16 per adjusted diluted share a 12 cents increase.
Fourth quarter 2019 revenue is now estimated at $1.7 billion with adjusted EBITDA guidance at $209 million or 12.1% of revenue.
And adjusted earnings guidance at $1.25 cents per adjusted diluted share.
In summary, our current guidance expectation incorporates lower second half 2019 oil and gas segment revenue due to regulatory delays on a large oil and gas project that will move some project activity into 2020.
As well as continued strong adjusted EBITDA margin rate performance.
In summary, as we move towards the end of 2019, we're pleased to be in position to raise our 2019 full year guidance expectation to near record levels for adjusted earnings and to confirm expected record 2019 cash flow from operations.
Importantly, as we look towards 2020 and beyond we strongly believe that our markets afford a significant and expanding multiyear growth opportunities and we expect 2020 to be yet another record year from Austin.
That concludes our prepared remarks, and now we'll turn it back to the operator for acuity operator.
And if you would like to ask a question.
Sarwan on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off your signals recharge.
Again that is star one if you ask a question.
Our first question Alex.
Yeah.
Hey, George Congratulations on a great quarter.
Thank you Alex good morning.
First question with regards to cash flow fantastic guidance this year of 600 million plus.
When we think about next year I suspect your expectation would be even greater next year.
I see lesson lessee uses of cash. So can you comment on how you think about capital allocation in 2020 as it pertains to this massive amount of cash flow generation.
Sure. So I don't think anything's really changed we've obviously.
I've been opportunistic so we think we've we've made a great acquisition in this quarter, that's going to pay big dividends for us. So I think our uses of cash or no different than they've been right. I think we're trying to reinvest in our business.
We have a ton of organic growth opportunities. We think we've got significant acquisition opportunities on a go forward basis, and then I think you've seen has been to be very active in terms of buying back shares over the last 18 months or so and we've been a little bit more opportunistic related to that.
I think that will continue looking at that and decide whether we want to be more more up opportunistic or be more methodical in nature.
Secondly, your commentary about 2020 is very very upbeat.
And pretty exciting.
A big component of that includes verbal awards in some delays in projects from this year to next year. So how do you.
How comfortable are you with the visibility of that in light of more broader or regulatory or permitting uncertainties.
Look there's no question that.
We don't think we've ever been in a better positioned than we are today, we think our backlog number misses that component of our business, which has changed right. So if you think about what's going on in the oil and gas industry specifically.
Those customers have realized the regulatory issues that they are having whereas they were fully contracting work a year 18 months in advance their awarding work that far in advance, but not necessarily signing contracts until they get a full understanding of when they're going forward and how they're going forward. So that timeframe has changed a little bit which I think.
Impacting what our backlog looks like but between backlog Verbal Award limited notice. The proceeds we have more visibility in that business specifically today than we've ever had that's why we're so upbeat. That's why we don't we don't think this is a short term story I know, there's a lot of concern out there around the oil and gas business. We're gonna have what we think is a fantastic 2020.
But even more importantly than that the visibility that we have today for 2021 and beyond is fantastic. There are a lot of projects that we haven't Q that are for 2021. There are some that maybe for 2020, they're going to pushed into 2021 quite frankly, we don't we don't think all of the work that we have in our backlog and in.
Verbal award will be completed in 2020. So we're we're in a great spot in that business today were very encouraged we've obviously, we're very happy with the margin profile, we've been able to achieving that business. We think it's sustainable.
When we guide on a go forward basis, we'll probably guide slightly lower to be conservative, which is I think typically of how we've always done it but we're very excited there. When you think about telecom, we're having conversations with our customers far in advance of them actually deploying things and I think that we're going to see a huge increase in activity levels, there and I thought.
It could similar right. We're we're out there yet this this acquisition between T mobile and sprint is very important for it to be finalized one way or the other because it's really impacting three carriers and as that as we get light on what's going to happen. There. We think there's going to be a pretty heavy acceleration in that market as well.
Great quarter. Thank you.
Thank you Alex.
Next we'll hear from Andrew Kaplowitz.
Good morning, guys nice quarter.
Good morning, Andy Thank you.
Oh, they just following up on out of his question you gave guidance to the guidance oil and gas revenue growth in 2020 in the high single digit.
Thank you, but the underlying growth for oil and gas actually at lunch project is still up in 2020, and then in communication with the understanding that sprint T mobile won't close until early next year, what's your conviction level. The communications can grow at that company average.
George talked about of low teens growth.
Yeah. So couple of things on on the oil and gas side I think one of the really nice stories for us in 2019 has been the diversification of the revenue base. We expect it to continue Theres a lot of opportunities for us across the segment in <unk>.
In everything from long haul projects, all the way down to working in the streets of large cities rehabbing existing pipelines, we do think that the large project portion of that can grow we actually.
The unknown there is one of those projects actually go.
I think the guidance that were given.
We feel extremely comfortable about the reality is that if the projects. All go that we think can go it's going to be a lot better than that but I think weve I think it's prudent to be conservative at this point in time.
From the communications perspective, you know I feel really strongly that the second half of 2020 is going to be fantastic I think we're not 100% sure when maybe that acquisition goods.
It's a big deal right because again, there's there's three carriers that are being affected from there from there.
Capital allocation decisions related to that and as soon as it as soon as it goes we think all three of them are going to let in a pretty big way irrespective of that right. Because those are the way we think about it.
Those three customers per se havent traditionally been very large customers for mostek, So thats more about our growth story than it is about our base business. So our base business, which is comprised more of a TNT and Verizon that's going to be very strong it's going to be up next year. So I think we're very confident and being able to talk about where we expect to be just on the base book of business.
When you throw in all of the potential opportunities for us it only gets better.
That's helpful. Jose and then you could kind of generation growth has been really strong you mentioned the lower margin.
To the issue is just a big ramp up in workforce, which makes sense, but at what point do you get concerned in profitability of the business now that it's a much larger book of business through yield.
So look at that business.
Going forward for talked about mid to high single digit profitability margin profitability in that business. When do you think you can achieve it do you need to sort of stabilize the growth a bit more or is it. This is something next year that we should really expect.
Andy last year, we did about 6% margins in the business, which has a huge improvement from where we had been obviously this year, it's a little bit more disappointing obviously the growth fund, especially in terms of team members has been a lot more substantial this year than it's been in the past we've got great opportunities for growth next year, I think part of what you're seeing as an investment in yet another further grow.
So cycle in 2020 with that said, we know what we know exactly where the margins our project by project, we know what the issues are.
There are a number of change orders are outstanding on a number of those projects. So that they come to fruition would help the margin profile.
With all that said based on the book of business that we have based on the backlog that we have we're comfortable that we can at least get back to 2018 levels in 2020, or and I think it's a matter of timing and just.
The way the project mix is laid itself out in 2019.
Thanks Jose.
Good.
And next we'll hear from Noel dealt with.
Please go ahead.
Hi, Thanks, Good morning, congratulations on the next quarter.
Good morning, all thank you.
So you touched on this a little that in your comments and some of the answers. The question says hey, but I was hoping you could just drill down a little bit deeper into some of the midstream work that you're doing in the Permian with Pimco, you talked about having visibility across all of your pipeline business as but I think thats, probably the one that took sorry about the most.
Because it seems like it's just performing exceptionally well and I'm, you're seeing really good bundle levels of activity. There. This year. So can you discuss just how how much visibility you have into that business. What gives you confidence into next year and you know just how you're how you're thinking about the sustainability of those margins.
Sure. So I think it's no different than the rest of our oil and gas business, we've got a.
Excellent year plan for 2020 based on conversations with customers, we've got work booked.
That actually want even start until 2021 in that area. So we think the next couple of years are really solid relative to the visibility that we have today you know going beyond 2021, <unk> I don't we haven't really had a lot of conversations about 2022 and beyond but that's usually a lifetime and in particular basin I think we're seeing a expansion of differ.
Basins as well that provide opportunities for all of our groups within our oil and gas segment. So we don't expect a slowdown in that business next year, we expect to have a really good year from a revenue perspective, we think that the margin profiles. The work is no different going into two 2020 than it was in 2019.
So again, we were very bullish.
Thanks, and then it sounds like there's maybe spend some progress in terms of funding some of that grid upgrade initiatives and Puerto Rico, how should we think about that in terms of opportunity from attack.
So Puerto Rico's interesting right, we it unfortunately for us when we look at last year's backlog it had $500 million of Puerto Rico work associated with that we've taken that out so from a comparable perspective, it's making backlog look worse than what it really is so you know further to the comments that we've been making today I think our backlog is actually a lot.
Got stronger than what it seems on paper.
You know the reason it wasn't backlog as we won what we thought was an excellent project in Puerto Rico, we were ready and excited to get started obviously the people that were involved in those contracts in initially in the work and it was more related to FEMA and the other contract are involved there were arrested they've been criminal recharged all of that has been cleaned up so I feel really good that on a go for.
Board basis.
Relative to that one contractor who is doing the the majority of the work on island is no longer there Oh, we think we're well positioned we do think theres going to be a significant inflow of dollars overtime into the island and again we.
We don't think there's anybody better positioned than us to do a sizable portion of that work it's not in backlog, we're not counting on it. We're you know we are doing some work we're doing more work there now actually than than we've done a long time, you know with that said its can all be about the dollars that flow in and if they flow and we'll do really well with it.
Thank you.
Next we'll hear from.
Yes.
Hi, good morning.
Okay rats, and congrats on a nice clutter and outlook I guess for the next for next year too I guess, just one question or a couple of questions Jose or one and one follow up so mark doesn't get Mad at me the at the level as can you just talk about within communications, how you're sort of thinking about that had cash.
Ramp that you're expecting in 2020 to meet your your topline targets and just sort of the level investment levels investment required as we think about 2020 versus 2019, and then I guess my second question is just more strategic again in particular.
You know I hear your cash flow generation is has been you know very strong I mean, you know communications and oil and gas had been the two drivers of your earnings growth. I mean is there anything inorganic you could do.
Within the electric transmission business or the PGTI business that could sort out you know at <unk> ignite the at the operating profit a story there or improve the operating profits during their quicker. Thanks.
Sure. So I'll start with the second part of your question first which is the inorganic nature of the two smaller businesses. These answers. Yes. There are things that we can do and there are things that we are looking at but the but the harder answer right as I think what we've done well, especially in those two businesses is as you look at powergen again its.
Tripled in three years, we've done that organically for the most part right and I think organic growth is a lot harder than acquisitive growth.
When you acquire a company you acquire the business. It goes into your financials, you pay a significant premium board upfront.
But it it's accretive to earnings immediately when you do it organically, it's not as expensive you don't spend as much money, but obviously it takes a lot longer for the the profit to work through your books. So the growth that we've experienced in enjoyed has been organic long term I think thats a good solution because the more we can grow organically, it's going to cost us a lot less.
Yes, we know the margins are going to come in overtime and I think thats really been one of the differences with mostek, we've really been inorganic story more than an inorganic story for a number of years now with that said, we've gotten to the size and scale, where there are some inorganic opportunities and we're selectively picking them and really going after them and we feel great about it.
With your first part of your question, which is you know a question of how do we ramp and what do we think the numbers are relative to a ramp in 2021 other things that we learned in the oil and gas business years ago was you really can't ramp when the work comes so if we're trying to ramp in 2020 were too late.
So what we've been doing is we've been ramping going into the cycle right. So the reason that our margins are down in 2019 is because we're spending money organically ramping the business and.
Obviously, if that growth doesn't come then it's about decision if the growth comes which were fairly sure that it will then I think it'll play out to be a great decision. So I think a lot of the investments required for us to take advantage of the work that's coming we're already making I think the the capital allocation to the ramp is going to actually decrease rather than increase because weve.
And taken those lumps now and we'll get the credit in the benefit for it in the future and I think we look at a more that way than than we actually do of having to go into 2020 with an aggressive ramp.
Thank you I'll get back to camp.
I mean.
Next we'll hear from Adam Thalhimer with Thomson.
Please go ahead.
Hey, Good morning, guys says I want to start on that.
Fiber awards, you talked about 700.
Million dollars in Q3 can you give us some color on those and then where those in the Q3 backlog.
So Adam a good morning.
So the.
Very small portion of them we're in backlog a significant portion of out of that revenue actually goes beyond the 18 month backlog period. So most of that 700 million is not in backlog.
Adam just if you look at it we have a remaining portfolio performance obligations over 18 months that number is gone from a couple hundred million last quarter to 900 million. This quarter. That's that's the that's where that's really shows.
And then is that from an existing are you doing cyber work for that customer today and this is an add on.
Yes.
Okay, and then for my follow up I, just wanted to ask about Quad Jen.
How does it fit strategically Jose and how much revenue do you expect.
So I think strategically it's a.
Fantastic acquisition for us.
You know for us, it's almost like a new business, it's not that it's complete before and we do some of that today within our business we contract a lot of that business out. So there the other people the small portions that we do but it opens a whole other world to us within that industry I think as these networks become more complex the amount of engineering so.
Supporting capacity that you need, especially on the back into these networks to make them work and to optimize them to make it work that the at their their best it's a huge business and it's one that is growing it's one where the vendor makeup of that business is changing historically, that's been something that the Oems have done and I think the carriers have really been looking.
For other partners to support them in that endeavor I think there are one of the leaders and that there are relatively small company today still a but it's it's a business that typically carries obviously very high multiples associated with it so for US it's been hard to find the right fit we think we bought the right company at the right value.
And we think it's just really blow the doors offer us strategically in what we're capable of offering our customers and really the you know how we can try to contract with our customers differently overtime every carriers different we've talked about that at length overtime, you know each carrier thinks about how they procure these services a little bit different and this really gives us an edge.
To really being able to compete with the Oems and almost really have no competitors relative to the pool and and approach that we're trying to sell and we think that's something that the carriers are going to really like a and we're really benefits.
Okay. Thanks, guys.
Thanks.
Next we'll hear from Brent Thielman.
Thanks.
Hey, Thanks, Thank you congrats.
Thanks, Brett.
Oh date seems like we're hearing more and more about transmission work, both small and large <unk>. The last few quarters, frankly from yourselves and peers and I'm wondering just capex wave sort of feel comparable or even larger than in prior cycles you've experienced.
I think it's finally coming to fruition.
It's been talked about for a long time.
I think there's just a lot of catalyst and a lot of different drivers that are pushing it today right I think clean energys, having a bigger impact on the grid and than where we would've thought a couple of years ago. I think all of these natural disasters that we're seeing on the east and West coast are going to have a significant impact on grid replacement. So that theres just a lot of activity a lot of work I think were again very.
Early in the cycle and I think the industry is going to do really well relative to it.
Okay, and then second questions on telecom. It you know we're hearing a lot about in frankly seeing some signs in results.
Decent pick up and sort of equipment and structures orders in supportive kind of the infrastructure needed to fiveg wave and and I take this is encouraging but I guess I'm wondering why that hasn't materialized in results for contractors. Yet is this all just ordered well in advance of.
When your services are ultimately required.
Well it to be clear, we've enjoyed double digit growth now for.
18 months quarter over quarter, we've been enjoying double digit growth. So it's not like there isn't growth. There we are more active today than what we've been in the last year and a half. The reality is that it's barely started and it really it really hasn't scaled and it will so you know the type of growth that we're hoping and expecting to see is in here, yet, but it's coming.
You know at the end of the day you go all the way back to there's still isn't a set of standards that everybody agrees to so we're in very early innings, but everybody's kind of doing their own thing I think a lot of that is going to start falling into place and again I think the second half of 2020, or we're going to start to see significant ramps going into 21 and beyond so I.
Again, I think it's very early I don't think it's something that's you know really rolling through anybody's numbers yet.
But it will and again, we think we're you know.
As well positioned as we could possibly want to be.
Thank you.
Thanks.
Next we'll hear from.
Yes.
Morning Blake.
On the telecom piece I think the target spend to get to something like 3 billion in run rate sales sounds like you probably won't get there this year with some of those things going on do you think you can get there in 2020.
Yes.
Got it.
And then on electrical transmission and the situation out West Delta Storm.
Hardening.
Darren.
Power.
Shutdowns and all that you guys play out there much and capture some of that work.
Historically, it hasn't been a big market for US obviously, we think they're going to need ought to help or we do think we can play a role out there and we're evaluating that you know there's a lot of focused on that but I also think we've had some.
We've had some heavy hurricane years on the East Coast last couple of years I know this year, we weren't as impacted Bahamas, We're obviously hit a lot harder, but I also think it's important to know things like you know up you know the state of Florida. Just recently passed the 35 billion dollar undergrounding build that they're going to start working in over the next 30 years.
To allow them to put it in rate base, which is the first time that they've ever gotten that pass through legislature, it's a huge issue.
It's an incredible amount of incremental spend so we're seeing things all over the country not just in the west coast, but obviously it was happening the west coast. It's terrible we've we keep all of those people that are reflected in our prayers and yes, we do think there's opportunities for us up there as well.
And we only.
<unk>.
Capital markets.
Hi team a nice nice job on the communications here I really appreciate all the color.
It's interesting to get an update on this dynamic around the sprint T mobile merger, maybe holding up some activity levels.
Their element or.
That we get questions on its just this btwenty capex guidance reflects kind of a down year over year trajectory in 2020, obviously, a huge budget with tons and moving pieces, but we'll just be curious to get a sense on mastecs exposure, there whether that whether there's any change in the.
Opportunity set as you see it after seeing this kind of formalized budget for next year from that big customer.
Sure. Good morning, Sean a couple of things you know our revenue they seem to you on a year over year basis is down it's a obviously theres lots of moving pieces in it for US our installation business is down again, which is the primary driver of our revenues are down.
18 team has been pretty vocal about the fact that they're spending less on fiber than they've historically spent and then the offset where we've seen pretty nice double digit increase has been on the wireless side of the business. So that really hasn't changed it's kind of in the same story for us all year.
You know agency has significant plans they are very public about what it is.
That they want to do related to Fiveg and.
And you know their total wireless build in general.
I think you know obviously they have encountered their own issues with the activists, they're talking about selling off a significant number of assets you know at the end of the day. We think all of that is positive we think as they generate.
More cash it will give them a reason to reinvest in those businesses that they have a you no longer bent towards which we think obviously the wireless arena will be one of them.
So you know things are going well with them, they're very active and we've really it's part of our growth story and.
On the businesses that really.
Matter to us we haven't seen to slow down and we continue that <unk> to continue.
Okay. Thanks next front one for me is this.
Leverage obviously below targeted range here, so some dry powder.
I didn't pick up on exactly how big the outlays for acquired Jan but just curious kind of.
Yes.
Capital allocation right next year.
Are there more questions out there do we build on this international opportunity and communications or how do we focus on buybacks here any color there would be great.
So in our Q, we we've got we paid about $80 million required region.
Okay, that's kind of size of the cash price of the transaction from an allocation perspective again, we do think there are some inorganic opportunities out there that we're looking at.
You know I don't I don't think we're gonna stay at these leverage levels for long. So I do I do expect us to deploy capital or ways, where we think it's more meaningful and.
Provides a greater shareholder return.
Okay. Thanks very much.
Thank you.
Next we'll hear from Chad.
Hi, good morning, guys.
Morning, Chad.
So just wanted to understand some of the puts and takes a four year.
Our 2020 revenue guidance for communications.
I'm, just I guess, how big of a drag do you think the install to home component will be how are you thinking about when that fiber to home when when the comps get easier or when that decline starts trough and.
Any sense on just how how first that will you be trending next year versus the share.
Sure. So again, you know, we're not ready to give us a little guidance next year, but I think that you know the installation business if it's down.
75 to 100 million GARS next year would probably be on the high end of.
What that could possibly be down.
We'd hope would be better than that but I think that's probably the outside range of potential liability.
You know from a first step perspective, its book as part of the World planets. The majority I think of what we're doing today is still related to person that I think that's going to continue so I still think that you know a lot of what's happening with fiveg.
That is you know further to the commentary that we just had on the agency Capex, that's something that they are obviously spending on they're not cutting back on that and it's not something that we expect them to cut back on when you add in what their future needs are it's the one side of the business that we're fairly confident ensure that they're going to continue to grow their investment and their capex into so we feel great about.
<unk>.
Great and stones.
From agencies perspective, it's a very small piece of our business today. So we don't we don't really see much difference from 19 to 20 on that side.
Gotcha, Okay, and then just sticking with communications kind of similar question just give you could talk through the moving parts on the margin side.
Yeah with Ah that the revenue leasing initial revenue guidance that you gave a 21 do you think you can actually hit a double digit margins nextshares.
And then just secondly, any color you can give on the order of magnitude Ah. That's a long haul projects that are awarded but not signed quite yet.
Yeah.
So.
[noise] the communications answer first we do think we can hit double digit margins, obviously, it's going to be somewhat dependent on you know how quickly some of those opportunities ramp, but I think you know at a low end of that we feel comfortable that's probably what our goal would be going into the year longer term, we expect to get back to historical.
Levels and that business. So we still are long term guidance with 12 to 13 really hasn't changed in that business.
But I think a great first up would be to be able to hit double digits on.
The growth that we expect from you know the long haul side of the business you know its.
If you take into account in all of the work that we're.
Expecting you know, it's well in excess of you know billion dollars.
[noise] based thanks, guys I'll pass it along.
Thank you.
Next we'll hear from Stephens.
<unk>.
Thanks, Good morning, I just on the on the pipeline side wondering if.
You could give us a little more color on.
The earnings and what was different about the work that you executed.
In Q3 that it made it even higher from a margin perspective.
Compared to the strong Q2.
And then what's the potential to sustain backlog of that higher margin work.
Versus the lower margin cost plus work just because the backlog was down this quarter.
Yeah. So again backlog is only a measurement of the work that we have signed a you know a couple of things right part of what's going to affect our margins on a quarter over quarter basis is.
The amount of cost plus work that we have versus the other types of business that we have so I think you know we absolutely believe that the current margin profile will hold through Q4. When we look at 2020, we don't think the margin profile of any particular of the project. The groupings of project will be any different the question will be you know how much cost plus world.
Work will we do relative to the rest in the cost plus world will drive down margins, a little bit versus where we are today. So when we think about 2019, you know we're going to finish this year doing about $800 million for MVP, which is our biggest cost plus contractor cost plus like contract when we looked at 2020 we.
To be you know similar size and value. So you know going into the year. We're hopeful that we can have very similar margin profile, but again until we you know there are some projects that are moving around so we'd probably be conservative and call at high high teens, which is much greater than anything we've ever guided before by the way.
But I think that would be the right conservative approach going into the year.
Okay, and then just shifting over to communications whenever you could just to follow up to give us a little bit more detail on the 700 million I is the plan there to recognize every quarter the incremental amount.
Of work that falls within Youre rolling.
Being 18 month period.
How certain is the the timing of all that work and then just to follow up on the staffing question are you still adding 250 people at quarter.
So the first part of your answer is yes says that work balls in within the 18 month period, we pick it up so this is work.
You know some a lot of it is add onto the existing markets, where we're currently in so it's kinda project phases. So we've got a.
You know very detailed plan as to when we expect to execute that work and we'll be adding it in.
As a as it falls in.
On the staffing period, we continue to continue at a higher at that.
Pace, a we do expect at some point to slow down that pays so to the commentary earlier. We you know we expect 2019 to be a heavier ramp for us and then hopefully slows down in 2020.
Perfect. Thank you.
Thank you.
We'll take our final question, Andrew Wittmann with Baird.
[laughter].
Great. Thanks, guys for taking my question.
I wanted ask about oil and gas here as well you mentioned that there are a bunch of verbal awards that are contracted yet and those are the ones I wanted to ask about and specifically try to get your sense about what needs to.
Happened to get those contracted there are these heavily waiting on environmental permits are they waiting on oil and gas prices are basis differentials to phone lines that the economics makes sense, but do they need offtake agreements from shippers I'm, just trying to get a sense of the likelihood and the things.
I need to break your way for those two text to move forward.
So the nature of I'd say the majority almost all of them is regulatory so its permitting it's not pricing. It's not these aren't LNG projects that we're talking about that are in future outer years that again, we feel very good about and we think.
For highly likely to happen, but that's not what we're talking about we're talking about projects that are that are missing permits and customers are are being.
A little bit tighter in their time frames are on when they actually want to issues. You know a lot of these a lot of these contracts you get a look right before you start where you try to give estimates and I think customers are trying.
And a wait for the most accurate assessment is possible before they actually go into full signing of contracts.
That's more of what we're experiencing so we feel highly confident that over the next 12 months virtually all of these projects will start where in that 12 month window is really the key to be able to lock into exactly where we think we'll be in 2000.
20, but again you know I think we're taking a very conservative view as to how we're looking at those projects are the commentary. We've made today, we feel very comfortable with being able to achieve regardless of what happens with any particular project.
That's helpful and that's all I had having a day.
Thank you.
Yeah.
And your questions I'd like to turn the call back to Mr. much for any additional or closing remarks.
This concludes our call here for the third quarter I'd like to thank everyone, who participated in a supported us and we look forward to our yearend call next year. Thank you.
And.
Thank you for your participation.
Yeah.