Q4 2019 Earnings Call
Good day, everyone. You're currently standing by for the Mouse Tech fourth quarter 2018 earnings call.
At this time, there it sounds like our audience and plan to be underway. Shortly we appreciate your patience things remain on the line.
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Yes.
Good day, everyone welcome to Mastecs fourth quarter 2019 earnings conference call.
Actually broadcast on February 20, 2020.
Let me remind participants on today's call is being recorded.
At this time I'd like to turn the call over to Mark Louis Mastecs, Vice President of Investor Relations. Please go ahead. Thanks, Nicole Good morning, everyone welcome to Maastricht fourth quarter call.
Oh extremely sniper shock to the safe Harbor for forward looking statements subscribing to private Securities Litigation Reform Act of 1995.
Okay.
To make certain segments are forward looking since your statements regarding Moscow execution result, players and just how you transiting industries, where we operate before looking side much of the company's expectations on what they think they should broadcasting This conference call and the company does not undertake to upgrade these expectations based on shops condenser knowledge various risks on certain.
He's been a shelf teams are detailed in our press releases in fact, when he or she she should want more these risk works journeys materialize or should any of our underlying assumptions prove incorrect actual results may differ significantly from the shelf expressed or implied in each communications.
In today's remarks on the extra week, we will be discussing adjusted financial metrics as discussed in reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures in this conference call reconciliation of any non-GAAP financial measures not reconciled. These comments it most comparable GAAP financial measures can be found in our.
He's really huge arching Jay or into posted Powerpoint presentation is located in the investors in these sectors of our workshop located in my second Dot com.
Yesterday, we got Oh, sorry boss, our CEO, George Pita, our executive Vice President and Chief Financial Officer before I haven't called the opening remarks analysis I was saying some of that's an accurate view from Georgia. He's discussions will be called the fall back to you I period, and we expect to call to last about 60 minutes.
Another great quarter now water important things to talk about today, So I'll turn over Jose right.
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Good morning, and welcome to Mastrich's 2019, fourth quarter and you're on call.
Today I'll be reviewing our fourth quarter and full year results as long as providing my outlook for 2020 and the markets we serve.
Happy to report that our financial results for 2019 were again at record levels.
2019 marks the fourth consecutive year record financial performance.
More importantly, we are again, providing record levels of adjusted revenue.
EBITDA net income cash flow and EPS guidance for 2020.
I'd like to congratulate and thank the men and women of monitoring for their part of caustic performance.
I am honored and privileged to lead such a great group.
Men and women of Maastricht are committed to the values of safety environmental stewardship.
Integrity.
Honesty and in providing our customers a great quality project at the best probably.
These traits had been recognized by our customers and it's because of our People's great work that we've been able to deliver these outstanding financial results and position ourselves for continued growth and success.
Now some fourth quarter highlights revenue was 1.7 billion.
Fourth quarter, adjusted EBITDA was 210 million and fourth quarter adjusted EPS was a dollar and 30 cents.
For the full year 2019 revenue exceeded 7 billion for the first time at just under 7.2 billion.
2019, adjusted EBITDA was 843 million.
2019 full year adjusted earnings per share was $5.21 versus $3.77 in 2018.
And cash flow from operations for the year was $550 million.
All of these metrics were at record levels for 2019.
In summary, we had an excellent quarter and another great year.
First I'd like to make some comments on the fourth quarter.
Actual results came in right, where we expected them with a little bit for changes in the mix.
Communications revenue and margins were basically flat sequentially, which was good considering the slowdown associated with the merger activity in the industry.
As expected oil and gas revenues were impacted by the push out of work into 2020.
Margins were again strong as we performed very little cost Reimbursable work.
Our electric transmission segment delivered strong double digit revenue growth and significant margin improvements versus last years fourth quarter.
And our power generation group delivered their best quarter of the year generating $333 million of revenue in the fourth quarter with nearly 8% segment EBITDA margins.
Reflecting on the full year.
While every financial metric was a record levels. The truth is 2019 could have been even better.
While our oil and gas group had a great year. There was a significant amount of revenue pushed into 2020 that we had the resources to complete in 2019.
And then communications the merger of T mobile and sprint delayed a lot of activity until the merger decision was reached.
I mentioned this because I believe there is a significant amount of pent up demand that will benefit us in 2020 and the on it.
Well those effects of foreign expected to completely subside until the second half of 2020, it gives us significant amount of visibility into our full year expectations.
Regarding 2020 today, we announced revenue guidance of $8 billion, an EBITDA guidance of $900 million.
Our expectation is that all of our segments will enjoy revenue growth and all but oil and gas should enjoy double digit revenue growth.
With regards to margin, we expect margin improvements in communications electric transmission and power generation with the decrease in oil and gas margins related to project mix.
In communications, we expect our growth this year to be driven by the continued expansion of fiber optic networks.
Investments in wireless network capacity and Fiveg related work.
As we've said before.
Expected fiveg capex budgets and length of the spending cycles are both unprecedented.
Fiveg significantly enhances the number of opportunities for mostek based on the total number of network elements involved.
Each of those elements requires significant construction activity.
Our expertise on deploying wireless services, coupled with our ability to do extensive front end work in conjunction with the optimization data management and data met maintenance allow us to sell these services across any carrier or geography, as an end to end service.
Based on how much sensor a fiveg network is the level of activity required to deploy these networks around the world is unparalleled.
Our reputation history and expertise uniquely position us to be a leader in fiveg deployment.
We also believe that were incredibly well positioned for the long term Nate network maintenance opportunities.
This cycle won't just be about the initial deployment, but will also be driven by the increased maintenance requirements of a bigger more dense complex and evolving network.
As the largest wireless contractor in North America, we are uniquely positioned to execute on these opportunities.
We're making significant investments today in people and resources as we are in the early stages of a sizeable multiyear opportunity.
We expect strong growth in the years to come with a significant improvement in margins as we reach full scale and utilization.
We're also very encouraged by the recent court rulings related to the T mobile sprint merger.
T mobile sprint and dish network, all have significant build plans, while the uncertainty around the outcome of the pending merger led to lower activity levels in the fourth quarter of 2019, which we believe will continue into the first half of 2020, we expect activity levels to significantly increase in the second half.
For 2020.
Moving to oil and gas segment, we expect another strong year.
We're enjoying strong broad based performance across our long haul and midstream project.
Integrity work utility main replacements and facility construction.
We have excellent visibility based on current backlog levels and verbally awarded work.
While backlog at year end was roughly $1.9 billion subsequent and verbal awards are now to roughly another $1.4 billion.
Our work today is more diversified in both number of projects and geographic concentration.
We expect oil and gas to have a slower start compared to 2019 as we have fewer winter projects and most of our projects are starting in the spring.
For example, we have four major project starting towards the end of the first quarter.
Five in the second quarter and another couple in early third quarter.
2002, 2020 revenues will be more back half loaded because of the work schedules.
We have already been awarded work for 2021 and activity levels and demand is very strong.
Margins in this segment were very strong in 2019 and included in our guidance is a margin reduction in 2020, primarily related to the expectation of a change in mix with more cost reimbursable work in 2020.
Our electric transmission group had a very solid year.
While we were expecting 2019 to be more of the transition year, leading into what we believe will be very strong 2020 in this business. The last couple of quarters have been better than we had forecast.
For the full year 2019, nearly tripled 2018 levels, we expect double digit revenue growth in the segment in 2020 with continued margin expansion.
Catalyst driving the business include the shift to clean energy grid enhancements and general spending around replacing and strengthening aging infrastructure.
Our power generation group also delivered strong revenue growth.
Revenues grew 56% from last year's fourth quarter and I'm pleased to announce at the segment exceeded $1 billion, an annual revenue for the first time, a 700 million dollar increase since 2017.
The segment has record backlog of nearly $1.3 billion and we expect them to deliver another solid year of strong growth.
We saw a nice uptick in margins in the fourth quarter and expect margins to improve on a full year basis in 2020.
We've done a great job diversifying the segment and we have strong opportunities in the wind solar power generation and civil markets and expect continued long term growth opportunities.
To recap we had another record year in 2019, and we expect 2020 to be even better.
Importantly, we are even more excited about our longer term prospects.
Targets, we serve our evolving changing and growing and we are confident mostek has positioned itself to be a leader across all of the segments. We serve.
I'll now turn the call over to George for our financial review George.
Thanks, and good morning, everyone.
Today, I'll cover fourth quarter annual 2019 financial results, including cash flow liquidity and capital structure.
As well as our initial guidance expectation for 2020.
As Mark indicated the beginning of the call artist structure to financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
Reconciliation details of non-GAAP measures can be found on our press release on our website for interact SEC filings.
In summary, we had strong fourth quarter 19 results and capped off a record 2019 year by virtually all GAAP and adjusted financial measures.
Our record year end 2090 level of backlog also supports our expectation that 2020 will be yet another record year from us Tech and importantly, long term trends in our end markets support our optimism for continued growth in 2021 and beyond.
As we enter 2020, our balance sheet is in excellent shape.
29 team generated another year, a record cash flow from operations and our expectation is that 2020 cash from operations will exceed 2019, yes, a new record level.
As noted in yesterday's release, we are pleased that S&P global ratings has recognized our consistent.
Strong cash flow performance and leverage profile with this recent ratings upgrade.
In summary, our capital structure provides us with ample liquidity and comfortable leverage metrics, allowing us full flexibility to take advantage of future growth opportunities.
Turning to a quick recap a fourth quarter annual 2019 results.
Fourth or 2019 revenue was $1.7 billion.
Adjusted EBITDA was $210 million for 12.3% of revenue and adjusted diluted earnings were $1.30 cents per share.
Annual 2019 revenue was $7.18 billion.
Adjusted EBITDA was $843 million or 11.7% of revenue.
Just a diluted earnings were five dollar and 21 cents per share.
With all of these metrics representing record performance levels.
Fourth quarter financial performance was strong and generally in line with expectation as we entered the quarter.
Looking back to our initial annual 2019 guidance a year ago, our actual 2019 adjusted earnings performance significantly exceeded their initial expectation.
Actual annual 2019, adjusted EBITDA of $843 million, beating our initial expectation by $63 million.
And actual annual adjusted diluted earnings of $5.21 per share, beating our initial expectation by 87 cents per share.
Now I will cover some detail regarding our segment results.
Fourth or 2019 oil and gas segment revenue of $587 million decreased 38% compared to the same period last year.
Due to as previously communicated lower revenue by a large project as regulatory delays caused an early winter break and pushed project completion activity into 2020.
Inclusive of this impact annual 2019 oil and gas segment revenue was $3.1 billion, a 5% decrease compared to annual 2018 levels.
Fourth quarter, 2019 oil and gas segment adjusted EBITDA margin rate was 23% of revenue and annual 2019 oil and gas segment adjusted EBITDA margin rate was 20.3%.
Annual 2019 oil and gas segment, adjusted EBITDA margin rate of 20.3% with a 660 basis point improvement over last year and as we've previously communicated. This performance includes the benefit of project mix with reduced 2019 revenue levels of lower margin.
Large project cost plus activity.
As you move forward into 2020, we expect multiple and significant oil and gas segment project activity based on the combination of our year end 2019 backlog coupled with a significant 2020 verbal award activity. It was they referred to in his remarks.
We anticipate the oil and gas segment annual 2020 revenue will grow in the mid single digit range.
With annual adjusted EBITDA margin rate in the high teens range with this estimate including an increased level of lower margin profile large project cost plus activity in 2020.
Based on our current expectation of a late spring early summer restart for selected 2020 project activity to be completed in 2019 project activity to be completed in 2020.
As well as a similar start date pattern for 2020, New project activity.
We expect the oil and gas segment revenue activity will follow a more traditional pattern. Unlike 2019.
For 2020, we expect revenue and profit activity to decline during the first half of 20 to 20 when compared to the first off last year were second half 2020 revenue and price activity experts at the show significant growth compared to the second half last year.
And revenue in project activity picking during the third quarter of 2020.
Fourth quarter 29 to communications segment revenue of $674 million increased 4% compared to the same period last year.
Annual 2019 Communications segment revenue of $2.6 billion increased approximately 2.4 compared to last year.
Fourth quarter and annual 2019 communication segment revenue trends are characterized by continued double digit growth in wireless and wireline fiber services.
Partially offset by decreases approximating, 30% install to the home services.
As a reminder, annual 2018 communication segment revenue also include approximately $75 million and nonrecurring, Puerto Rican Hurricane released steppers.
Well fourth quarter and annual 2019 communication segment adjusted EBITDA margin rate was 8% of revenue.
And this decrease rate decreased rate level reflects ramp up costs related to fiber project startup costs and crew capacity initiatives as we divested communications segment capacity growth in 2019 in order to maximize our future potential.
As I indicated in his remarks, the U.S. telecommunications market is rapidly evolving and we believe this evolution will drive significant and long term demand for our wireless and wireline fiber services.
We expect annual 2020 communications segment revenue adjusted EBITDA, and adjusted EBITDA margin rate to show strong increases when compared to 2019.
With annual 2020 revenue approaching $3 billion annual 2020, adjusted EBITDA margin rate approaching 10%.
This expectation includes the assumption that both revenue growth rates and adjusted EBITDA margin rate performance will improve during the year with first quarter 2020, adjusted EBITDA margin rate expected to approximate first quarter 2019 levels and adjusted EBITDA margin rate performance improving in it.
Second quarter, 2020, and accelerating throughout the balance of year.
Importantly, while our communications segment annual 2020 expectation reflects a significant improvement when compared to 2019 performance.
We anticipate the computing communications segment market trends will continue to progress over the year before.
Affording us the potential for continued significant additional revenue adjusted EBITDA and adjusted EBITDA margin rate improvements in 2021 and beyond.
Fourth quarter 2019, electrical transmission segment revenue increased approximately 16% compared to the same period last year to approximately $115 million and annual 2019 revenue was $413 million.
Fourth quarter 2019, electrical transmission segment adjusted EBITDA margin rate was 8% of revenue and annual 2019, adjusted EBITDA margin rate was 7.1%.
And on annual basis, 29 team's performance, representing 450 basis point improvement compared to 2018 levels.
This segment also into 2019 was strong backlog over $500 million.
We expect annual 2020, electrical transmission segment revenue will show strong growth somewhere in the high teens to low 20% range with a slight improvement in adjusted EBITDA margin rate when compared to 2019.
We also believe end market conditions for this segment are supportive and expect continued strong revenue and adjusted EBITDA margin growth for this segment in the coming years.
Fourth quarter 2019 power generation and industrial segment revenue increased approximately 50% to $333 million and annual 2019 revenue grew 55% to $1 billion.
We've been saying for several years. This segment has significant growth potential and we are proud to have delivered on this expectation with this segment's revenue growing from $300 million in 2017 to approximately $1 billion in a short two year period.
Fourth quarter 2019, adjusted EBITDA margin rate was 7.7% of revenue a strong sequential improvement and well over the annual 2019, adjusted EBITDA margin rate of 3.9% for this segment.
In summary.
Annual 2019, adjusted EBITDA margin rate performance for this segment was negatively impacted by operating inefficiencies related to managing high levels of revenue growth.
And we believe the fourth quarter 2019, adjusted EBITDA margin rate performance is more indicative of the longer term margin profile potential for this segment.
We continue to experience a very active market and renewable project activity as evidenced by record power generation Industrial segment year end 2019 backlog levels that approach $1.3 billion.
As we look towards 2020, we expect this segment will show strong revenue growth somewhere in the high 20 to high 30% range.
We also expect.
Annual 2020, adjusted EBITDA margin rate performance to improve somewhere in the range of 200 to 250 basis points over last year to the high mid to high single digit range.
Now I will discuss a summary of our top 10 largest customers for the annual 2019 period as a percentage of revenue.
PTC revenue derived from wireless and wireline fiber services was approximately 15% and install to the home services was approximately 5%.
On a combined basis. These three separate service offerings totaled approximately 20% of our total revenue.
As a reminder is important to note that these offerings, while falling under 118 T. corporate umbrella.
Managed and budgeted independently within that organization, giving us diversification within that corporate universe.
Equitrans Midstream Corporation was 11% of revenue.
Thank you transfer was 8%.
Verizon comprised of both wireline fiber and wireless services was 5% of revenue an epic midstream pipeline was also 5%.
Phillips 66 was 4%.
And Duke energy Kinder Morgan were each at 3%.
EBIT draw that Nextera energy rounding up a top 10 customers at 2% each.
Individual construction projects comprise 64% of our annual revenue with Master service agreements comprising 36%.
And this mix highlights that despite increased project activity levels. We continue to have a substantial portion of our revenue derived on a recurring basis.
At year end 2019, our backlog of approximately $8 billion represented the highest year end level and mostek history.
Notable backlog 70 during the fourth quarter included a sequential increase in communications power generation industrial and electrical transmission segment backlogs.
It is worth noting that last year's year end 2018, electrical transmission segment backlog.
Included approximately $250 million of Puerto Rican storm restoration services, but ultimately never led to revenue generation and thus unduly impacts current year over year backlog comparisons for this segment.
And this represents the last period for this compare ability issue as no Puerto Rican storm restoration backlog was reflected in any 2019 backlog amounts.
Lastly, the should be noted as we've indicated for years backlog can be lumpy as large projects burn off each quarter and new large contract awards only come into backlog at a single point in time.
This trend is evident given a significant.
Oil and gas 2020 Verbal award activity Jose mentioned in his remarks.
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 and working capital usage as well as capital investments.
For the year into 2019, we generated a record level of $550 million in cash flow from operations and ended the year with net debt defined as total debt less cash of $1.36 billion, which equates to a book leverage ratio of 1.6 times.
We ended the 2019 year with Dsos at 91 days compared to 81 days last year.
I'm just trying to increase in Dsos approximately eight days was due to the combination of lower fourth quarter 2019 revenue levels on selected oil and gas project activity, coupled with fixed or higher project Retainage balances simply based on project timing.
Additionally, we had about $75 million in ordinary course collections from one customer the equivalent of approximately four days outstanding.
Arrive in January rather than by year end.
Given the seasonality of our first quarter 2020 revenue coupled with fixed retainage amounts, we would expect DSL levels for that quarter to approximate yearend levels and then return within our stated DSL profile of mid to high Seventys to mid to high Eightys.
We are proud the annual 2019 cash from operations reached a new record level and the 2019 free cash flow defined as cash flow from operations less net cash capex. Once again exceeded net net income adjusted net income.
This performance was based on ordinary course billing and collection activity and highlights the strength of our cash flow profile.
Accordingly, we also expect record annual 2020 cash from operations growing at a rate slightly higher than our planned 2020 earnings expansion with free cash flow once again exceeding adjusted net income.
As we begin 2020, our long term capital structure solid with low interest rates those no significant near term maturities strong capital structure and ample liquidity.
This combination gives us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value.
As a reminder, we have approximately $129 million remaining in open share repurchase programs.
Regarding our spending on equipment annual 2019, net cash capex defined as cash Capex net of equipment disposals was approximately $91 million and we incur additional $206 million and equipment purchase purchases under finance leases.
We anticipate incurring approximately $150 million and net cash capex in 2020, with an additional $150 million to be incurred under finance leases.
Moving to our initial 2020 guidance, we're predicting annual 2020 revenue of $8 billion.
Adjusted EBITDA of $900 million for 11.3% of revenue.
Adjusted diluted earnings of five Dollarssixty three cents per share.
As noted in the tables on yesterday's release effective with the first quarter of 2024, all presented periods.
Adjusted diluted earnings per share measures will exclude the net of tax impact of amortization of identified intangible assets for all of the company's acquisitions.
We believe this presentation is common practice and will improve comparability of our results with our largest public peer.
We also believe this presentation better represents the company's adjusted diluted earnings per share results given the noncash nonoperational nature of these charges coupled with the inherent volatility in these charges from the purchase accounting process.
The supplemental schedules in our press release yesterday, so the impact of this presentation presentation change, which equates to approximately 23 cents per share for both the annual 2020, and 2019 periods and US an apples to apples comparison of adjusted diluted earnings per share on this presentation basis is $5 a 63 cents.
Per share for 2020 compared to $5.44 per share in 2019.
Effective with the first quarter of 2020, all historical period data results will be shown under this new presentation basis.
As we have previously provided some color as to 2020 segment expectations I will briefly cover other guys perfect patients for modeling purposes.
We expect annual 2020 interest levels to approximate $75 million with this level, excluding any potential share repurchase activity that may occur in 2020.
Our estimate for 2020 share count is 76.3 million shares.
We expect annual 2020 depreciation expense to approximately 3.2% of revenue.
A slight increase over 2019 is rate due to timing impact of 2019 capital additions and acquisition activity.
We expect that annual 2020 other segment equity in earnings from our equity interest in Wahab pipeline operations will approximate 29 things level.
We expect annual 2020 corporate segment adjusted EBITDA to be a net cost of slightly less than 1% of overall revenue with this improvement over 2019, primarily expected as a result of lower expected earn out charges.
We expect net income attributable to non controlling interest will approximate rankings levels and cadence.
And lastly, we expect that the annual 2020 adjusted income tax rate will approximate 24% with this expectation, including a near zero tax rate during the first quarter due to an expected discrete deferred tax benefit that will be recognized only in the first quarter.
With subsequent 2020 quarterly adjusted tax rates approximating 26%.
And this blend reached an annual 2020 adjusted tax rate that approximates 24%.
Our first quarter 2020 revenue expectation is $1.3 billion with adjusted EBITDA guidance of $108 million or 8.3% of revenue.
Adjusted earnings.
Earnings guidance at 48 cents per adjusted diluted share.
As a reminder, first quarter results typically represent our lowest brings a level of the year.
Due to winter weather seasonality and a transition to new customer capital budgets and also reflects previously discussed timing cadence of 2020 oil and gas project activity.
In terms some additional color on the expected timing of 2020 consolidated revenue performance. We expect first half 2020 consolidated revenue to decline in the mid single digit range when compared to the first half of 2019.
And second half 2020 consolidated revenue to increase in the high 20% range compared to the second half of 2019.
This expectation incorporates previously indicated timing cadence of expected 2020 oil and gas project activity as well as expectation that communications segment 2020 revenue growth levels will accelerate during the year.
Based on anticipated 2020 revenue timing, we expect that first half 2020, adjusted EBITDA margin rate will be in the high single digit range.
And due to increased second half 2020 revenue levels second half 2020, adjusted EBITDA margin rate will accelerate exceeding our annual 2020 expectation of 11.3% of revenue.
In summary, we are proud of our record 2019 performance and to be in position to have new record performance expectations for 2020.
Importantly, as we look beyond 2020, we strongly believe in our markets afford us significant and expanding multiyear growth opportunities.
That concludes our prepared remarks, and now I'll turn the call over the operator for Q and operator.
Thank you, ladies and gentlemen, if you would like to ask a question today. Please press star and then one under Touchtone phone.
If you are using a speaker phone setup today. Please make sure you pick up the handset or do you press your mute function. So listen we'll can reach our equipment.
Also any interest of time, please limit yourself to one question and one follow up questions.
Welcome to rejoin the queue after that.
And now we'll take our first question from Blake Hirschman from Stephens.
Hi, Good morning, guys. Congrats on a date yet.
Thank you bye.
First off on the communications can you just elaborate a little bit on some of that thing sprint T mobile.
And the others that kind of held back activity.
In the back half in the year and we will end in the first half and then expand a little bit more on some of the things that give you confidence.
Then activity really accelerate into the back half.
Sure So I think.
If you look at 2019, a lot of the slowdown in the second apples all related to the merger activity. So those companies that were engaged in the merger activity outside of those companies. If you look at 18 theory looked at horizon, and I don't necessarily think that they slow down in the second half. If you look at our fourth quarter revenues with 18 fee and you back out our install piece, we were actually up.
10% with that customer in the fourth quarter versus last year, and I know, there's a lot of questions around our first half guide and even our Q1 guidance and how much of a ramp it has to happen in the second half one of the things that are led to point out across all segments, specifically communications were actually expecting that segment that.
Up in the first quarter of 2020 versus the first quarter of 19, so despite the slowdown from sprint and T mobile and even dish right. Just all three of them combined in the merger, we're still seeing a lot activity in the industry that the problem is we're not seeing the level of activities. We would have both relative to fiveg and we know it's coming we view it up for it we think.
We're in great position. So I think it's all it's all great part of the story right, there's going to be a lot more work, we're well positioned to execute on it we're well positioned to do really well and we're looking forward toward to becoming we think it comes in the second half per year.
And it's exciting prospects for us.
Got it and then a follow up tick in with communications.
I know you've been ramping up hiring and then it's impacted margins is that the main drag a year or is there any you know.
Jack.
We ended the issues as well and then when when do you think at what point in the year are you going to be lapping the worst of that.
Accelerated hiring rate thanks.
Well, the hiring rate's going to be dependent on where we're seeing the industry at any given point in time, why we made investments in 2019 that we think we're going to pay use dividends for us. It's all a function of revenue. So we are margins aren't declining our margins are kind of steady on a sequential basis and that's that's our expectation so to the extent.
Revenue closing is when we think we'll see margin appreciation based on utilization that's still what we believe we think that really starts in the second half of 2020.
And that's really the only change to what our expectations and.
And and guidance has been.
All right I'll turn it over.
Thank you.
And we'll take a question from Noel.
Stifel.
Hi, good morning.
Good morning, I wanted.
Good morning, I wanted to touch on that once the oil and gas and then on pipeline I'm just trying to get a sense of the visibility you're talking about for 2020 line and that work you've done. So when you talk about that 1.4.
Billion on Federal Awards is there anyway to get us give us a sense of how much of that work might continue into 21, and I just would like to get a sense of how you're thinking about visibility in the market.
Given some of the comments for hearing at its midstream companies that are you expecting a more conservative approach to capex.
We understand what what people are saying, we obviously reader weren't contract with all of our customers, we understand what each customers doing.
Youre going to see a different customer mix for us over the course of the next couple of years. While there are some customers that are slowing down there are number of other customers that are still going to be spending considerably in the years to come.
We're very bullish about not only 2020 to 2021 of the 1.4 billion is actual awarded projects.
There are a lot more projects that we're chasing right now that will be executed in the next 18 24 months that we're very excited about.
We.
We expect to be in the same place in 2020 that we've been in the last couple of years, we'll be at full capacity.
We're going to struggled to figure out ways to get all the work done in the second half of this year that we're going to have and we think we're going to be in a similar position in 2021 based on the conversations that we're having with with our customers in the expected jobs that were open to win and be executing not just in 20, but in 21 longer term.
We've talked about it before we reviewed believers and what's happening with LNG, we think thats going to create an enormous amount of work in outer years.
So I.
Despite all the noise and despite.
Particular customers and what they're doing with Capex, we're still very bullish as to what's happening in our industry.
Thanks.
Thats very helpful. And then just sticking with oil and gas you guys said.
On a lot of helpful guidance around margins and how you're thinking about them for the year, but.
Specifically as it relates to Thats first quarter of 20.
It looks like revenues will be down sequentially.
But how are you can you just give us a little bit more detail on how you're thinking about the margin profile for oil and gas and the first quarter on.
They need and into the second just on public within next set of cost plus our says on.
For instance market price in the first half versus the second.
Look I think what what's happening in Q1 or a couple of things. One is we had some project push outs from 19 that.
We would have been hope hoping to work on some of those projects early in the year, even if it was restoration related work that would have generated more revenue.
We were probably caught a little flat footed on that relative to.
Finding work to back that up because we.
At the end of the day, we're committed to the jobs that we have so we've got to have the capacity for doing once they start so Q1 will be slower the reality is that the way a lot of our contracts work.
As even though revenues will be down will be compensated on some jobs for for some of our expenses. So margins in Q1 should be very strong again, we're not we're not expecting a dramatic drop the margins it will be less than they were in Q4, but they'll be solid for first quarter. As we look at project starts going into the second quarter in third quarter, we expect that.
Business to begin to ramp.
We expect to have a really strong second half just based on our work schedules to kind of put it in perspective, what we're kind of think in for 2020 is we'll do about $1 billion in the first half the year and roughly $2.2 billion in the second half of the year. That's got our guidance plays out obviously second quarter being almost double what first quarter is and if you go back to I don't know 2018.
Sooner so you'll see that we did about 1 billion won in the second half of 2018, so to believe our guidance you've got to kind of believe that we're going to do what we did in 2018, plus about $100 million for the second half versus what we did an 18, we think thats very doable.
I think the work schedule and plans that we have out play perfectly to that so we are.
No I think.
On an overriding theme, we take guidance very seriously we take a lot of pride in the fact that we've been able to deliver to guidance with such a long period of time, that's what gives us our credibility is very important to us. So we wouldn't put out any numbers that we didnt think were achievable and we think our second half plan is very achievable relative to the work that we haven't today.
Thank you.
Thanks.
And we'll take our next question from Jamie Cook with.
Hi, good morning, and nice quarter.
I guess two questions Jose one I'm, just going back to the communications business and you talked about.
That's meaning that we need that needs to improve margins, but just broadly can you talk about the investment in 2020 same versus 2019 or how do we think about how you're ramping.
Head count in that business or we just starting to moderate because you want to see the revenues come through and then my second question on the oil and gas side understanding you have great visibility in your market share is very high like are you seeing any sort of changes in terms and conditions when you're bidding on projects just because that market.
At least meeker, even if your market share is high and whether that's Everest business. Thank you.
Sure. So I'll answer the second part first and oil and gas again, I think that we've done a great job. We're building the brand building reputation.
I think.
Our customers know, where we can deliver.
And I think Thats put us in an advantageous position I don't see any difference in the margin profile jobs on a go forward basis is what we've seen in the past.
I think of customers generally are looking for contractors that they know are going to deliver their projects on time and on schedule and for a long time, we've executed on that and done very well and I think of the results of spoken for themselves and their demonstrated in our financial results, but the reality is that it's that the production in the field results that allow you to perform financially so.
Got it speaks for itself on the communication side of the business, we're going to continue to ramp.
Moderated a little bit in the first half the year, but we see a we see a lot of work coming and we want to be well positioned for again, we're going to see a stronger second half in first half.
Maybe.
We're not we don't have huge expectations for what.
The merge entities are going to end up doing in the first half the year, we expect some pickup in the second if anything I think our AR.
Our guidance is conservative relative to where we could ultimately do with some of them.
So again, we're very bullish.
Thank you.
Thank you Jamie.
And we'll take I know some Andrew capital.
Any.
Good morning that.
Oriented.
The next quarter.
Just one backlog and asking me if I could ask another question a different way.
The 1.4 billion that you mentioned.
In backlog in Q1, and then last quarter, you've mentioned initial guide.
They do go for the year life.
Mid single digit.
Just for that discount thing, how and keep things out is that.
Sales of cancellations that you've seen this year.
You can give us.
Change.
Yep. So the first question around what we expect to be in backlog at the end of Q1, we expect the for 1.4 billion.
Turning to contracts in the first quarter more than half of that is already entered into contracts. So we would expect that other have to be concluded you're in the next month or so so we're hoping all of that falls into backlog at the end of Q1.
From a.
Look I don't.
We're guiding growth in our oil and gas business, it's not double digit growth its low single digit growth.
I think that's relative to all the noise that's out there I think thats a.
Thats.
Excellent results with that said.
There's definitely a level of conservatism built into that we're not anticipating that every project is going to go perfectly and we're going to be able to do everything in 2020 that.
That we would like to do or that our customers would like us to do we're making the assumption something you're going to get delayed and some things you're going to push that's been a.
I think a prudent way of looking at guidance and that's kind of what we've done in the last couple of years, if everything hits that we're supposed to do in 2020 that number's going to be a lot better, but I think were taken a moderate buda guidance, which I think is reasonable at this point in time.
It just speaks to the strength of our work and what we both relative to that industry.
That's helpful diplomats asking about power generation.
Got a 1.3 is quite high obviously.
You can talk about for the makeup of what's going on is it more when construction work.
PPC exploration I, maybe give us ready medications for college, and but given the backlog make snap back in March in college and be 100 will either by business.
They're not too distant future.
Yes, so couple of things right I think their growth has been broad based obviously renewables is a big piece when sold or by.
Actually.
Wait standard all types of waste energy is has been a driver for us.
You know were.
We're encouraged by that I don't know, if you're aware, but the PTC when credit got extended so thats something that isn't really a driver of the business today, we're going to see a lot of strength in that industry hopefully for the next couple of years.
So the business is just very solid has done a good job of building the business. We've been very focused on trying to prepare ourselves to take advantage of of whatever could come through an infrastructure Bill we think theres lots of pieces, there that are going to get significant investments.
Once once our government decides to invest in infrastructure, which we think is it's not a matter of if it's a matter when so some of the things that we're doing that are really opening us up to that marketing and giving us the ability to hopefully take advantage of that market. Once it comes but it's relatively broad based and again I think theyre executing very well I think you've seen it in the.
The improvement in margins.
Our margins will subside a little bit of in the first quarter again and start to grow we expect a better full year margins in that business and we had in 2019 the management team there's been a phenomenal job.
Quite frankly that business has an opportunity also so significantly beat what our expectations are in 2020, and they're just doing a great job and again, the very very diversified mix of work.
And for that.
Thank you.
And our next question will come from Brent.
Even with the 18.
Hey, Thanks, good morning.
Brent.
Good day heard or I guess them would suggest that sprint T mobile or months behind in meeting this sort of three year, 97% fiveg coverage they need to get too and there is then that would need me maybe to accelerate some spending are you having more active dialogue. There do you think they'll emerge as a more relevant customer viewed in future.
I think theres no question about or we've been having dialogue with them.
Throughout the entire merger activity period, we think all of those we think both.
The remaining entities, what you're going to be T mobile and dish.
That's significant build plans, we have great opportunities of the industry has great opportunities, there's going to be a lot of work I think again weve taken a moderate view relative to what we think we can achieve in the second half with them I think there's a lot of upside related to that but again, it's part of what we've invested in we've made significant investments over the course of the last years to possess.
And ourselves as the best alternative for carriers as they think about their long term needs I think carriers understand our position in the market. They understand what we bring and nothing thats going to create opportunities for us. So again, we're very excited.
Again, if you look as if you look at how we plan 2020, even on the communication side.
Moving to roughly I don't know a billion for in the first off the year a billion dollars billion five doing six in the second half the year and if you look at the last few years 2016, 2017, 2018 2019, we've always done about $100 million more in the second after year than we've done in the first half of your consistently over the last five years, if you look.
At our plans for this year it roughly correlates to 150 to 200 million more in the second after this year and relative to all the things that happened in the industry, especially with efficiency mobile we think thats not a very unrealistic were difficult.
Stretch to get too and Thats kind of what we've got built in for them.
Okay, that's great and I got to ask I guess, just given the cash flow is last year expectations. This next year leverage is down how are you thinking about buybacks today versus M&A and other opportunities for capital allocation.
Look the same where we are is that right I think we've we've been very opportunistic relative to our stock we've made significant purchases and points, where we thought that the stock is undervalued.
Obviously.
With the performance of the stock here, especially in the last week, we believe the stock is very undervalued.
We we were hit before the slow down already.
We got to the point, where we felt we were significantly undervalued now we think were ridiculously undervalued. So obviously something we'll be looking at.
We're in a great position to take advantage of these opportunities as they arise.
We think they create a lot of shareholder value. So it's absolutely something that.
We'll be considering and focused on.
All right I agree with that thank you.
Thank you.
Our next question comes from Alex Regal with B. Riley.
Mr. Eagle, we can't hear you, maybe you need functions engaged at Jose Jose you there.
Yeah, Hey, Alex how are you.
Pretty good sorry.
Couple of quick questions first and communication and submits a catalyst to getting the margins back above 10%.
Just better labor utilization or is it more to it than that.
Yeah, I think it's about.
Revenues coming in I think we've we've built our cost structure up a little bit based on the investments we've made in the people that we've hired.
Revenues up the come into support that so I think we've done a good job of maintaining the margin levels, where they've been as soon as we see a relatively nice up tick in revenue I think we'll begin to see it in margin. So I think it's right around the corner, we understand our business really well we track it in a lot of detail. So again, it's something that we feel very comfortable is coming we wish you would have been you're already obviously.
Our expectation refer revenue to run a little bit more 19 and they did.
But we're very confident that's going to cover the second half a point.
And then secondly, with regard to oil and gas business can you quantify the revenue from large pipeline projects that you expect in 2020 and talk a little bit about the competitive environment.
Yes, So I think you know even in 19 and looking at 20, we don't have.
Any single project, that's making up the dramatic.
Portion of our work, where we had that a little bit in 17, and 18 were one made up a significant amount of our revenues I think if you look at 19, we had more of a broad base NBP was probably our biggest project.
Very broad base beyond that I think you're going to see the same thing 2020.
That's encouraging for US obviously, we're spreading our risk we're spreading our geographic profile.
That said, there's there's a lot of work up there I know, there's there's a lot of concern as a lot of questions were amazed by the level of activity around.
Not just projects for 2022, but planned projects beyond that.
So that's our expectation that you're going to see a lot more.
Not mega projects put a lot of big projects, so the opportunity to work on and perform.
Great. Thank you.
And our next question comes from Steven Fisher with GBM.
Great. Thanks, good morning.
Just wanted to really follow up on that last point that you were talking about what Alex and if you could talk a little bit more about the customer mix that you talked about the mix shifts that you talked about with Noel.
Yeah to what extent does that reflect a regional chain.
Or some other product mix shift.
And then that.
What are you assuming in terms of timing of.
Some of these big project approvals.
And when they might come through.
Yes, So look I think if you look at the business driver, we generated 20% margins in 2019, we're going to have margins that are close to that.
In 2020, obviously.
From a 100 basis points less is what we're expecting relative to the mix.
With.
With that being consistently good right. So we expect really good margins in oil and gas.
Both in the first quarter first half second half pride improving as year goes on.
It's it's a very exciting time part of that is driven by the mix of projects that we have right to the extent that we do more cost reimbursable work in those periods margins tend to be a little bit lower because that work ends up being.
As much risk, but obviously the returns are a little bit lower so we feel really good about the mix of work that we've got we feel really good about where the projects down so the fact that.
But the great majority of our projects really are facing significant regulatory hurdles.
Obviously MVP is the one that everybody wants to talk about because its out in the press Alan and and we've got some permits we got to completely finished that but you don't NBP. There's lot of work to do irrespective of what happens with the Supreme Court and all of these permits right. So there we've got to go back to work. There's a lot to do full completion of that project will have some dependency on permits but.
For the most part there's there's a lot of activity around these jobs in most of the other jobs are in that and Thats circumstance. So again good geographic diversification.
Good mix of work is is helping us both grow revenues and maintain the margin profile.
Thanks is there, but you didnt mention there was a customer mix shift.
Vince here.
I was just wondering.
I have different that might be in what way.
Well look I think there always is right because you got.
The the broad based dancer isn't one midstream company reduces capex it doesn't necessarily have a huge impact on our business because there's others that are increasing capex or there's others that have projects planned that are hitting in the particular year. So it's not one customer driven right. We've we've done big projects for customers their role than their rollout.
They have significant project one year. They may not have a lot activity. The following year that may end up coming back a couple of years. Later, so it's important for us to have broad based relationships with lots of customers and kind of figure out who spending and what time period and make sure. We're in front of them and have great opportunities and I think we've been able to do that.
Got it just a quick on telecom how much did quite gen add to backlog in Q4 I assume it was fairly modest and then do you expect the bookings to kind of on quarterly basis and communications be consistent with the fourth quarter are they going to be kind of lumpy up and down quarter to quarter.
Look it's going to depend on.
The big opportunities for us for further for significant further backlog expansion is going to come from some of the new entities and what happens post merger that stock.
I think thats going to play out over the course of the next couple of quarters not necessarily next quarter.
For the quadrant question it was.
Two as long as well under 100 million a lot of the work that they do was was was for US a portion of that work, which we wouldn't do anything to our backlog. So it really didnt have a meaningful impact the backlog.
Thank you.
Thank you.
Our next question comes from Chad Dillard with Deutsche Bank.
Hi, good morning, guys.
Morning, Chad.
So can you talk about that but 2020 mix of wire line versus wireline style has that compared to 29 team.
I would also on bulk water transmission side.
And just talk about yeah, no project pipeline the prospects, there and how to think about that.
Yes, so on.
You know were for 2020 were actually expecting growth in both wireline and wireless.
The I think the wireline growth will be fairly consistent throughout the year or was that a lot of project. So we're working on so it'll be really strong both first or second half I think wireless is really strong again showing growth first up I.
I think showing more growth in the second half.
So both of those markets. We continue to believe were very strong there's a lot activity. There's a lot of fiber being placed for multiple reasons right. One is obviously for wireless backhaul, but the second you've got the cable companies doing a lot relative to.
Providing higher speed broadband to home. So there's there's a lot of activity there on the wireless side I think we've talked about it a lot I think every carrier is going to have massive spend plans for a long period of time as they begin to raw fiveg from an electrical transmission side I think we've done a really good job with the business right I think they've they've executed it performed on the project.
We expect.
Strong double digit growth this year, I think George said north of 20%.
We've got.
Our backlog is actually very strong we got a lot of projects to fall outside of the 18 month backlog period. So our total backlog in transmission is considerably higher than what our stated and published backlog number is there. We've got a lot of projects outstanding some of which we think we're going to win that are going to have a very positive impact to backlog. So you know everything's working very well there we've always talked about.
Having the goal of all of our segments being north of $1 billion. We saw powergen do that last year. We think ultimately this is a matter of time before the electrical transmission who've got Sir.
And then our cash.
On the cash conversion can you talk about how to think about that in 2020.
We're also talking about the advocating setting as we get to the again thanks.
I know we've talked about obviously, we're expecting record cash flow from ops for the year.
You know our DSO level, the a little higher in the first quarter will be similar to what we did in the fourth quarter, but we'll still generates significant cash flow. So.
I don't think it'll be it'll be it will be relatively consistent it's not going to be as lumpy that was two years ago. We had some structural issues that slowed collections now at this point everything that we're dealing with is just ordinary course collections of movements outside of maybe Retainage and that's where thing. So no question that for the year, we expect record cash flow.
You know as well as we get in 28.
And 20, a 19, frankly, because the little bit better on cash flow. So we expect that our cash flow in 2020 should grow a little bit higher than our overall growth in terms of earnings is concerned and once again, we expect the free cash flows and exceed net income.
Thanks, I'll pass it on.
Thank you.
And our next question comes from Adam.
Paul Hammer with Thompson Davis.
Oh, that's perfect.
Hey, George I can't stress.
You seem to stress that Verizon wireless was a good opportunity in Q4, and I think historically horizons used small kind of local contractors for.
Wireless work at their larger opportunity opportunity there.
So I don't I don't know can directed at the Georgia myself, we we've been saying it for a while right I think horizon.
As you look at the one fiber project contracted that project very differently than the historically contracted anything I think thats opened the doors for significant dialogue with that customer around what they're going to do in the future.
I think what we all need to understand is irrespective of there's much noise and press. It gets fiveg is an extremely early stages and the amount of activity levels required to ultimately deploy that are going to increased considerably.
Multiples of what it is today, which is going to give every every carrier significant challenges as they think about their build out plan. So I think every carrier that exists out there today is going to have opportunities available to the industry for people to come in and take advantage of it and really create different types of relationships and they've seen in the past to be able.
To execute on their plans and Verizon is no different.
As a that powergen businesses. So big now can you kind of walk us through.
What percent of the Knicks now between wind solar biomass.
The breakout of each of those.
Yeah, I'm, just I, just a little more color I mean, it's become a big piece. The story now so just some more color on.
Internally within that business, what's really driving things.
I think it's a mix of all of it right soldiers are relatively new business for us it's a great opportunity.
Our hope is 15% 20% of that business this year will be related to solar.
When continues to be significant piece of the business for us that are probably 40, 50% of revenues.
In 2020.
In the balances a mix of all other types of work right everything else, we've talked about over the course of the last year.
All the pieces are growing probably.
Obviously soldiers news, so thats growing faster, but again, it's a very broad.
Mix of projects and again, I think are performing very well and executing well on the on all project mixes.
Got it thank you.
Thanks So.
And our next question comes from Shawn Harrison with Keybanc capital markets.
Morning, gentlemen, thanks, taking my question.
Okay.
Quick question.
I'm just curious.
2019 mix.
How much of the LNG segment is.
Tegra the work and utility main replacement you know that stuff that.
The investment community is a little more comfortable having exposure to just curious what that is today, maybe what kind of strategies are in place or sort of growth trajectory. We can see around that mark sort of defensible type work.
So a couple of things right one is weve.
We're very excited about that market, we think thats, a growing market, there's obviously lots and needs in different parts of the country, where more dollars are being spent than others.
It's relatively a.
Two to 400 million as our business for us at any given point in time.
With that said, we agree that that's a defensible market, but we don't we also agree. We also believe that the rest of our business is pretty solid right. So I know the distinction in the market between them.
But I think it's important dimension that we feel really good about the long term ability of the rest of our business to continue to perform and maintain at current levels.
Okay, that's helpful and.
Second one is just around.
So we've got the sprint T mobile merger, which is.
Positive development around the Fiveg opportunity said, but then we've also got this corona virus backdrop, and some potential supply chain impact around that and and so and just be helpful to get a sense for.
An update on just the overall timing on when some of the Fiveg macro tower work is going to start to kick off in earnest.
Well some of it has started right. So it depends on what carrier. So I think when you look at the carriers or weren't involved in the merger that they kind of set their build plans for 2020. So we've got a good feel for.
What where they're going to do we think equipment hasn't been an issue to date they've done a good job pre planning on their procurement side, so they've they've done a lot relative to that.
Some of the guys that are coming out of the merger.
Stopped a lot of the work that they were doing are significantly slowed it down. So we think there was an inventory build there as well.
We think somewhat offsets any potential procurement issues as we looked at least through the end of 2020.
You know beyond that we don't think it's been it hasn't been an issue in the industry to date, we obviously have noise. We have no idea, what's going to ultimately happened there and how much worse that gets and if it does end up having long term.
Issues with certain types of equipment, but at all our customers are super focused on it they are working hard on it there trying to find.
Alternate sources of so needed. So there's a lot of attention being paid to that right now at the customer level.
X. I I appreciate attack thanks.
Okay.
And our final question will be coming from just help with Robert W. Baird.
Yes. Thanks, two quick numerical ones here just first one on the diversification of the.
Client base in oil and gas for the second half ramp I guess I'm just curious I mean, it looks like the MVP based on the.
Percentages you gave with your customers was about 25% or sell the full year revenue how much scope has left on on that project. That's part of that ramp versus maybe everything else that you book and are going to book in the first quarter.
Yes so.
None of.
NBP is not into $1.4 billion of subsequent and verbal awards that we talked about.
We would consider that part of what we had from our pending work. So there's there are separate and I think that's important to note.
We expect.
You know a considerable amount of revenue from MBP to finish the job, we're not going to get into specifics, but I think if you look at 2019 levels, there's probably roughly that much left to finish the job. The completion, how much of that happens in 20 versus or if it pushes some in the 21, we'll see and I think.
Probably all will say about that customer.
Okay. That's enough net that's actually helpful. The second one is just on quad Jim the revenue contribution looked like it was a little bit more than what we were expecting what's the acquired revenue assumption that you guys thinking from that business and in 20.
In 2020.
On a gross basis, if you look at the revenue is probably.
Just under 100, but a significant portion of that is internal maastricht, so it'll get reversed and consolidation. So it's probably a $50 million.
Roughly.
Thank you.
Great.
Okay and there are no further questions at this time I would like to turn the conference back over to our speakers for any concluding remarks.
This concludes our year end 2019 call I'd like to thank everybody for.
Supporting us during the year in participating we look forward to updating you on our first quarter call.
Yes.
I once again, ladies and gentlemen that concludes today's conference I appreciate your participation today.
Okay.
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