Q1 2020 Earnings Call
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Let me remind participants on today's call is being reported.
At this time I'd like to turn the color work directly with Nostix, Vice President Investor Relations Mark.
Good morning, everyone welcome Nostix fourth quarter call.
Let's take this makes you have to shape all forward looking statements are striving to private Securities Litigation Reform Act.
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Forward looking statements or the company's expectations.
After this call and the company does not undertake.
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Non-GAAP financial measures.
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He found in our press release, our 10-Q, four and Oh coupon presentations walk getting investors and they sections are workshop in bookings that must take into account with us today, we have well share my gosh, our chief Executive Officer Jordan.
And Chief Financial Officer.
One of the call, we'll be opening remarks, I would say followed by.
And your view from George.
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Thanks Mark.
Good morning, and welcome to March six 2021st quarter call I.
I hope and pray that everyone's family is healthy and safe.
Truly in challenging and unprecedented times.
Just a few months ago on February 28, we reported record 2019 results combined with record guidance.
Well the cold at 19 virus came up during our year end call Little did we know that a few weeks later much of the country would be shut down and warranty.
During this time the safety of our team members has been our top priority.
I have to say I'm, so proud of the men and women of marketing.
Sacrifices resilience creativity and commitment or been inspiring.
Millions of families throughout the U.S. rely on the power Communications Entertainment and other services, we help our customers provide.
Our team has delivered and I'd like to thank the men and women of Mostek produced sacrifices and hard work.
First a recap of where first quarter.
Revenue for the quarter was 1.417 billion.
Adjusted EBITDA was 118 million or.
Adjusted earnings per share was 60 cents.
Gosh woke him operations was 203 million.
And backlog at quarter end was 8.3 billion a new record level.
We had a solid first quarter exceeding our previous financial guidance for revenue EBITDA and he P. S.
It's important to keep in mind that most of our services have been deemed essential understate local pandemic mitigation orders and all of our business segments have continued to operate.
Well there were some disruption to the last couple of weeks of the quarter March was an excellent month.
As we think about the balance of the year, we felt we have enough visibility to provide guidance.
Again since most of our work is ongoing the biggest restore guidance around governmental permitting.
Social distancing mitigation and the impact it may have on project schedules and any potential project delays.
Our 2020 guidance, which George will cover in detail assumes the impact of these rules based on the best information we have today.
Now I'd like to cover some industry specifics.
Communications revenue for the quarter was 644 million versus 613 million last year and margins were up about 50 basis points year over year.
Our wireline and wireless business was up 10% offset by about 20% decline in our installation business.
As we think about the cold it impacts on our communication segment, our install business is predominantly only doing service related work with strict mitigation efforts in place as it relates to entering customers' homes.
Most of our outdoor work like fiber installation and wireline and wireless deployments are continued with the exception of a few markets, where we are currently shutdown.
Our customers are working hard to ensure the internet connectivity is strong and available for their customers.
This has created a spike in worked activity levels associated with these services.
Our customers are also committed to rapidly deploying technology, including Fiveg.
As the World Reopens, our day to day lives, maybe temporarily or more permanently impacted.
If you think about social distancing requirements on a go forward basis access to information will be key.
I can easily envision ups that will effectively be cues for public spaces.
Long lines are going to be replaced by just in time axis as things like restaurants limit cheating and public venue is required testing and temperature readings deploying fiveg networks are an enabler for these potential technologies.
We are confident that our customers are committed to these deployments with that said, we anticipate potential impacts to our business for the balance of leader, we're concerned with governmental permitting delays.
We're in working with cities and municipalities to bolster remote permitting capabilities and have seen improvements since the start of the shutdowns.
Our customers are looking for solutions and creative ideas to speed up deployments.
Revenue in our electrical transmission segment was 128 million versus 95 million in last year's first quarter.
Margins for the first quarter improved 250 basis points year over year.
Mark was up year over year, but down sequentially and does not include a number of verbal awards.
We're very excited about the progress was made in this segment and feel we are very well positioned for the long term growth.
As it relates to recent impacts we have a number of projects to the seem some recent delays and permitting and project starts have been pushed out a couple of months. While there is a large amount of work to be awarded in the industry. We believe some of the stay at home orders it impacted bidding schedule.
Despite these impacts we expect revenues and earnings in 2022 exceeding 2019 levels and believe we're very well positioned for 2021 and beyond as the drivers for this segment remain intact, which include aging infrastructure reliability renewables and system heartening.
Moving to our power generation and industrial segment revenue was 286 million for the first quarter versus 189 million in the prior year.
We continue to achieve significant growth rates in this segment and backlog at quarter end was a record at 1.3 billion.
We expect this segment to grow somewhere between 30% to 50% this year and margins to improve over 2019 by over 100 basis points.
Well that impacted the segment had been minimal as most of our jobs are located in rural areas. We continue to see strong demand for renewables with significant growth in solar activity along with distributed generation.
Our oil and gas pipeline segment revenue was down as expected.
First quarter revenue was 359 million compared to revenue or 621 million in last year's first quarter.
We ended first quarter with backlog of $2.6 billion, it's significant increase from year end levels.
We have been in constant communications with our customers and we're confident in our backlog levels.
We're closely monitoring the impact to cobot 19 is having on commodity prices and how it's affecting world demand.
We expect these significant decline in you its oil production as a result.
It's important to note that over the last three years of Mastrich's, roughly $10 billion of oil and gas segment revenue.
Only 6% of that revenue came from oil pipelines.
Based on current backlog levels and discussions with our customers on future projects, we're comfortable with the revenue levels provided in our updated guidance.
Looking ahead into 2021, we now expect a considerable amount of revenue from these projects to move into next year as we expect both permitting and crude distance requirements will limit. The number of people are one project and thus will extend schedules.
While we're not in a position to provide guidance for 2021 in our oil and gas segment between current backlog levels and potential future Awards. We think we're at a good position as the market ultimately recovers and demand increases.
To recap we've had a good first quarter and are confident we are mitigating the effects and impacts of the covert 19 virus.
While times are challenging and uncertain opportunity always arises from these challenges.
Our company was built around our response to hurricane Andrew in 1992, and again reinvented itself after the dot com crash in the early two thousands.
Our customers will be looking for ways to change and improve their business model as a world reopens in their lives our opportunity.
Our greatest strength has been to understand the trends in our industry and our customers needs.
Our ability to provide services, whether existing or new has always been strength.
I'm excited for what the future holds from Austin.
I'd like to again, thank for men and women of Maastricht for their commitment to safety their hard work and their sacrifices keep up the good work I'll now turn the call over to George for our financial review George.
Thanks, Jose and good morning, everyone.
So ill cover first quarter 2020 results.
Our current guidance expectations for the balance of 2020, including potential impacts of the covered 19 pandemic.
As well as our strong cash flow profile capital structure and liquidity.
As Mark indicated the beginning of our call.
Our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
Reconciliation and details of non-GAAP measures can be found in our press release on our website or in RCC filings.
In summary, our first quarter 23 results were better than expected.
Adjusted EBITDA exceeding our expectation by $10 million and adjusted diluted earnings exceeding our expectation by 12 cents per share.
We also generated record cash flow from operations during the quarter of $203 million, a 250 million dollar increase over the same period last year.
This strong cash flow allowed us to invest approximately $119 million, an opportunistic share repurchases totaling approximately 5% of outstanding share base, while still decreasing our overall net debt level on a sequential basis.
I will make further remarks on our capital structure later.
But suffice to say that our cash flow capital structure and liquidity are in excellent shape.
And this combination affords us a strong advantage as we navigate through the uncertain economic climate, resulting from the cobot 19 pandemic.
And lastly, our first quarter 2020 backlog grew significantly both sequentially and over the same period last year to a new record level of $8.3 billion.
This includes a record level power generation industrial segment backlog.
As well as a strong sequential increase in oil and gas segment backlog.
Now I will cover highlights regarding our first quarter segment results and guidance expectations for the balance of 2020.
As expected and previously communicated first quarter 2020 oil and gas segment revenue of $359 million decreased 42% compared to the same period last year based on project timing.
First quarter 2020 oil and gas segment adjusted EBITDA margin rate was 20.7% of revenue continue our strong performance trend with this performance, including the benefit of project mix comprised of reduced levels lower margin large project cost plus activity and continued strong project productivity.
On numerous smaller pipeline projects.
During the first quarter were were approximately $1 billion and new oil and gas project awards for work to be started in the back half of 20 training with estimated completion dates in 2021.
With a combination of these awards as well as visibility into additional 2021 project activity our project work profile for foreseeable future remains clear.
That said, we expect regulatory and judicial challenges will continue to impact the timing size scope and duration of our oil and gas project activity in 2020 and.
Coupled with the impacts of group endemic mitigation efforts. We currently expect that a greater level of awarded oil and gas segment project activity will move from 2020.
2021.
Accordingly, our guidance expectation for oil and gas segment revenue assumes that second quarter 2020 revenue will modestly increased sequentially over first quarter 2020 levels.
And second half 2020 project activity and revenue will increase significantly on a year over year basis as large project activity initiates.
This project timing and mix results on an annual 2020 oil and gas segment revenue expected to decrease in a low to mid single digit range compared to last year.
We continue to expect the oil and gas segment annual 2020, adjusted EBITDA margin rate will be in the high teens range, including the expectation that second half 2020, adjusted EBITDA margin rate will be slightly lower than the annual rate expectation due to project mix with an increase mix of lower margin.
Large project cost plus activity during the second half of 2020.
Okay.
First quarter 2020 communications segment revenue of $644 million increased approximately 5% compared to the same period last year.
First quarter 2020 Communications segment, adjusted EBITDA margin rate was 7.9% of revenue.
The U.S. telecommunications market is continuing its rapid evolution, which we believe will drive significant and long term demand for our wireless and wireline fiber services.
Additionally, covered 19 nationwide stay at home orders have resulted in a surge and network usage, resulting from Telework and home schooling activities.
Further highlighting the importance of developing and expanding our nation's telecommunications infrastructure.
While the service services, we provide and the communications segment are considered critical infrastructure and are largely proceeding we are seeing and expecting some disruption during the balance of 2020 as a result of the cobot 19 pandemic, including lost revenue and crew productivity from local municipality permitting delays.
Ladies coupled with crew level pandemic mitigation impacts.
We also expect larger decreases over the balance of 2020 installed at home services due to consumer coated 19 pandemic social distancing concerns.
As a result, we expect second quarter 2020 Communications segment revenue will approximate first quarter 2020 levels and we expect second half 2020 revenue will approximate last year's second half levels.
Inclusive of anticipated coated 19 pandemic related revenue and productivity impacts we continue to expect the annual 2020 Communications segment adjusted EBITDA margin rate will improve compared to last year by approximately 100 basis points.
Importantly, we believe assets identical such effects begin come up to normalize fiveg market trends will afford us the potential for significant revenue adjusted EBITDA and adjusted EBITDA margin rate improvements in 2021 and beyond.
First quarter 2020, electrical transmission segment revenue increased approximately 35% compared to the same period last year to approximately $128 million.
First quarter 2020, electrical transmission segment, adjusted EBITDA margin rate was 6.5% of revenue.
We anticipate some level of coded 19 pandemic related project startup delays in 2020 with annual 2020 electrical transmission segment revenue.
Good to grow into high single digit to high teens range compared to last year.
We also expect a slight improvement in annual adjusted EBITDA margin rate when compared to 2019.
We continue with the believed that end market conditions for this segment are supported and expect continued strong revenue and adjusted EBITDA growth for this segment in the coming years.
First quarter 2020 power generation industrial segment revenue increased approximately 51% compared to the same period last year for $286 million.
First quarter 2020, adjusted EBITDA margin rate was 1.7% of revenue due to the combination of some production efficiencies and higher fixed cost levels on a seasonally slow revenue quarter.
We continue to experience are very active market and renewable project activity as evidenced by record power generation Industrial segment first quarter 2020 backlog levels of $1.3 billion.
As we look towards the balance of 2020 Jose already mentioned, we expect this segment will show both strong annual 2020 revenue growth and improved adjusted EBITDA margin rate.
Formats, when compared to last year.
Now I will discuss summary of our top 10 largest customers for the first quarter 25, 20 period as a result, as a percentage of revenue.
ATP revenue derived from wireless and wireline fiber services was approximately 19%.
And install to the home services was approximately 5%.
On a combined basis. These three separate service offerings totaled approximately 24% of our total revenue.
As a reminder is important to note that these offerings, while falling under one ATP corporate umbrella are managed and budgeted independently within that organization, giving us diversification within that corporate universe.
Verizon comprised of both wireline fiber and wireless services was 7%.
Thank you transfer was 6%.
Enterprise products, Nextera energy, Duke Energy and Comcast Corporation for each at 4%.
And XL energy Permian Highway pipeline LNG reach at 3%.
Individual construction projects comprise 58% of our revenue with Master service agreements comprising 42%.
And this mix highlights that we have a substantial portion of our revenue derived recurring basis.
Lastly, it's also worth noting as we head into a potential told at 19 induced period of macroeconomic uncertainty.
That all of our top 10 customers, which represent over 60% of our first quarter revenue have investment grade credit profiles.
I first quarter end 2020.
Backlog of approximately $8.3 billion represented the highest level and lost track history.
That said it is worth noting that our current record backlog level includes the negative impact of approximately $350 million and reduce backlog levels compared to the same period last year for installs on home services within our communications segment.
And this decrease accounts were virtually all of the year over year decline in backlog for this segment.
Now I will discuss our cash flow liquidity working capital usage and capital investments.
During the first quarter 2020, we generate a record level $203 million and cash flow from operations and ended the quarter with net debt defined as total debt less cash of 1.35 billion.
Which equates to a book leverage ratio of 1.6 times.
We ended the quarter with Dsos at 104 days compared to 91 days last quarter with the increase primarily due to administrative delays and ordinary course collections from the impact of the covert that 19 pandemic nationwide stay at home orders enacted near quarter end.
We are fortunate that our business operations profile typically generates significant cash flow from operations affording us the flexibility to invest strategically and efforts to maximize shareholder value.
Our first quarter 2020 results highlight this fact, as we opportunistically repurchased 3.6 million shares at a cost of $119 million and still reduced our overall net debt level during the quarter.
As we look forward towards the balance of 2020, we believe our strong cash flow profile will continue.
While potential macro economic impacts of the covered 19 pandemic over the balance of 2020 are still developing and we are closely monitor conditions. During these uncertain time, we expect annual 2020 cash flow from operations to range at levels that will approach for slightly exceed 29 teams.
Record level of $550 million.
This cash flow expectation, coupled with a solid long term capital structure with low rates no no significant near term maturities and ample liquidity of approximately $950 million.
Places mass spec and an extremely strong balance sheet position.
Regarding our share repurchase program, we will opportunistically invest in this program if conditions warrant it.
While also prudently managing our balance sheet.
We currently have $159 million, an open repurchase authorizations and as of today have not executed any share repurchases during the second quarter.
Regarding capital spending during the first quarter, we incurred net cash capex defined as cash capex net of equipment disposals of approximately $52 million and we incurred an additional $27 million and equipment purchases under finance leases.
We currently anticipate incurring approximately $150 million and net cash capex in 2020, with an additional $140 million to $160 million to be incurred under financed leases.
Moving to our current 2020 guidance inclusive of potential Kroger 19 pandemic impacts.
We are projecting annual 2020 revenue to range between $7.3 billion to $7.7 billion.
With adjusted EBITDA expected to range between 775 and $825 million.
This equates to adjusted EBITDA margin rate between 10.6 and 10.7% revenue.
And adjusted diluted earnings ranging between $4 and 50 to $5 per share.
As we've previously provided some color as to 20, turning segment expectations I will briefly cover other guidance expectations as highlighted in our release yesterday.
Based on our expected strong cash flow and lower nominal interest rates, we expect annual 2020 interest levels to approximate $69 million.
For earnings per share purposes, our weighted average annual 2020 share count is 73.6 million shares, including our first quarter share repurchase activity.
It should be noted for valuation modeling purposes that our year end 2020 share count will approximate 73 million shares which is approximately 600000 shares lower than the 2020 weighted average annual share count and this is due to the timing of first quarter share repurchases.
We expect annual 2020 depreciation expense to range between 3.5% to 3.7% of revenue due to the combination of lower expected 2020 revenue levels and the timing impact of 2019, and 29 and 2020 capital additions and acquisition activity.
Lastly, we continue to expect our annual 2020 adjusted income tax rate will approximate 24%.
This expectation includes our existing first quarter adjusted tax rate as well as the expectation that quarterly adjusted income tax rates for the balance of 2020 will approximate 26% and this blend leads to an annual 2020 adjusted tax rate that approximates 24%.
Our second quarter 2020 revenue expectation range is $1.5 billion to $1.6 billion.
Adjusted EBITDA, ranging between $150 million to $160 million or 10% of revenue.
Adjusted earnings ranging between 70 889 cents per adjusted diluted share.
This guidance expectation includes expected revenue and productivity impacts related to the covert 19 endemic.
With that concludes our prepared remarks, and that will turn the call back to the operator for Q and a operator.
Thank you she would like to ask the question signaled by pressing star one under telephone keypad using a speakerphone. Please make sure. Your mute function is turned off tomorrow, you signaled to reach an equipment.
Yes, that's you limit yourself to one question and one follow.
And again that Istar willing to ask your question.
Pause for just a moment at better opportunities for questions.
And we'll take our first question from Brent.
Yeah, Hey, Davidson.
Great. Thank you.
On that.
And with the color on some of the delays in permitting and the code that disruption.
With that has on near term growth rate.
Given the very good plan rests on the network.
Dialogue with the customers talk about how you think the backlog and booking trend as we move through the year and start to think about them.
Potential norm normal.
Later, this year and into 2021.
Sure. Good morning, Brett So couple of things first I think that.
All the long term thesis in that business hasn't changed one bit.
If you think about the early response to covert I think most carriers, especially the ones that have wireline.
Networks have really been focused on making sure that their customers have.
Internet and high speed availability to homes, right and improving that there's lot of people that are either watching video over the top and quite frankly, there's lot of people that are using their own fly Fi networks.
Through their phones, so people get their phones that connected there what Bae systems at all so a lot of the cellular tropics actually gone through Wi Fi systems today and.
Just anecdotally what what I'm hearing is that the wireless network traffic is actually down because so many people are in their homes using the Wi Fi network. So it's it's kind of interesting because that's where really the priority for a lot of the carriers in our customers has been over the course of the last couple of months, that's going to changes people come out and the wireless networks get taxed and.
I think that the carriers in general are expecting there to be a pretty rapid swing the other way on that and it's going to be interesting to see.
How the networks.
Fair I think overall to date the networks at fair extremely well what did with as it relates to coated.
You know the biggest issues for us have been permitting and that if you think about the types of jobs that we do the relatively small there relative.
On a work order basis, so even though jobs, maybe be either broken up a little pieces and each of those pieces requires a number of different permits at any given point in time, we haven't made significant backlog at any given point in time that we've been working off of obviously, we need that permitting.
Outpaced the continue at a rapid rate at first we saw pretty significant slowdown to that permitting and there was lot of concerns and issues rabbit. It has improved its not where it needs to be but it's a lot better. So we've taken a moderate to do as we think of the balance of the year. We don't really know when every municipality is going to open up and whenever that is going to be back working so I think we've modeled that is.
Best as we can today, and we're expecting that to lag a little bit and and for us to have.
A tail to that that's going to take at least the next few months and maybe even in second half the year.
We have other cities, where we're completely shut down some of our biggest fiber build cities, we're actually not working so some of those cities are outlets cities like San Francisco in Seattle.
That are more stringent.
We've got some other markets into New York area, where our instant where it's also shutdowns. So we've got a handful of markets, where we're not generating any revenue and again, we've taken that into consideration as we thought into the year. So.
Factor, we do expect communication revenues to be a little bit lighter than where where we had expected coming into the year and I think its attributable to that I'd, probably say that the areas or shut down or having more of an impact on that than even the permitting but between the tool and I think we've taken a conservative view as the year plus plays out.
Okay.
Fair enough and then on oil and gas it's good to hear.
The commitment the capacity has all of this change customers approach to kind of pricing or terms conditions that could you still feel pretty good. This type market can support kind of generally elevated margins for the foreseeable future.
We do we think it's been a competitive market for a long time, there we're not the only player in that space. So I think.
I think we're a low cost provider, which is really important.
And with that we've been able to generate really good margins based on the things that we've done in that business over the course of the last few years really prepare ourselves where we knew was going to be a very active market. So I think structurally our cost structure is very different than those of our competitors, which puts us in a in a very enviable position, especially as as the market gets a little bit tighter. So we feel really good about our.
Margin profile and our ability to continue executing on that margin profile.
The business will be a little bit different and with that again comes a lot of opportunity. So we're excited.
Who.
Work will work that we've got we're again, where a great position from a backlog perspective, but also think what a great position relative to customer relationships and just understanding what the customer's needs are and our ability to be able to fill that and really and meet their demands.
Okay. Thank you.
Thank you.
When we can move to our next question comes from Alex Regal B. Riley. Please go ahead.
Good morning, guys nice quarter.
Thank you Josh good morning.
Good morning.
Oil and gas backlog increase.
Nicely can you talk a little bit about.
What types of projects in what the top line of business projects looks like some that recent increase thats backlog over the last three months and then can you touch on your thoughts on the Keystone energy pipeline opportunity.
Yes, so from an oil and gas perspective last quarter I think we kind of gave a lot of we.
You kind of talked about this and kind of played out as we expected. So on our last call. We talked about having about 1 billion for projects that we expected to make it into backlog in the quarter. If you. If you look at the way. It played out it was about a billion of that billion for there's still a number of other projects, where we feel we've got a verbal award and the contract just werent side in time for the first quarter backlog. So we see.
You have considerable amounts of other work that we feel really good about that's not in the backlog number as of as at the end of the quarter, which we also think as a positive stuff. We also walk through at the end of the year.
Our project.
Cequent through the year and really when we expected those projects to started now there were going to plan.
Some of it came to fruition Writeup, we've had we've had about four projects.
That we talked about the that all started on time, we have to that were accelerated actually from Q2 into Q1 that started in late Q1. We've had a couple of would have slipped a few months based on schedule and permitting.
So and then we've got a couple of that that are right on schedule. So we feel really good about where we started the year, where we thought we were going to be and how it's playing out.
We're definitely back end loaded we've been back end loaded since since we've been talking about this since probably the third or fourth quarter last year that was our expectation going into year end as planned out like that one other things that we're monitoring and I think we've taken into account in our new guidance is.
I'm going to be some social distancing requirements on these jobs, we haven't done it yet so it's going to be interesting to see how it plays out but we do expect.
Some of these jobs and take longer than we had originally anticipated some of those jobs, we're pushing into the 2021 and a pretty sizeable right way anyway, I think it's just kind of exasperate that.
So.
Between that and other projects. So we know our customers are going to be doing and 21, we actually have better visibility that I think people give us credit for for 2021 as it relates to Keystone. We've we've what we've said all along as we feel good about our opportunity to ultimately work on that project.
Project is going to primarily be 2021 and beyond build schedule. None of that is in our backlog. So we we've never actually specifically spoken about that project, but we feel good about our opportunity to compete and it's a project that obviously, we hope to work on at some point in time.
Turning to telecom backlog was down a little bit can you explain why and then can you quantify.
<unk> revenue associated with side goal and what that could look like.
A year or two.
Yes, a couple of things to George talked about it in his prepared remarks, if you look a year over year backlog trends the entire drop in backlog came from our new assessment on our install business. So called is that a big impacts on our install business a lot of that is MSK driven so we reevaluated, where we are there we've dropped.
About $350 million on the year over year basis, and that's really the significant drop to backlog.
I think puts us in a really good places as we start modeling out and as we start having comparable is on a go forward basis. So that has a lot to do with the with the drop in backlog.
As it relates to Fiveg I think.
Every carriers different right. So you we've got four primary carriers today. If we include dish Verizon and ATM fees had been on a cadence that that is obviously going to ramping continue to ramp as we go into 2021, you've got T. Mobile sprint that that acquisition disclosed that I would say from all intents and purposes.
As a somewhat behind schedule right. They close and then they got caught up in coated we're very bullish on what that means for us over the long term, but it's going to play out it's going to take a little bit more time than I think anybody would have hoped and then you've got dish under the same circumstance right. They've got a lot to do there were a big beneficiary of that.
That merger as well with what Theyve got they've got significant plans, but again I think over it is kind of slowed that down. So we've we've said all along that we think with all the other carriers bit Verizon T mobile.
Or dish, they're big opportunities for us there's no reason why we shouldn't be doing significantly more revenue for all those there's significant opportunity even with Canadian team. So we hope that are our wireless fiveg type revenues associated with all those guys significantly increases over the course of the next couple of years, all we would hope to see it'd be multiples of what it is today.
We think thats the level and size of opportunity and it's our job to go execute on that.
Thank you very much good luck.
Yes, maybe to add to that out as one one final thing I do think it was nice to see Verizon is our second largest customer as a first time they made it there.
I think thats also on it.
Important look at the quarter and a nice.
Nice to have during our first quarter.
Thank you.
Thanks.
Thank you.
Our next question comes from Blake Hirschman of Stephens investment Bank.
Hi, good morning, guys.
You sound healthy so that's good.
Good morning, Thankfully we are.
Let's assume that oil prices don't go up.
From here.
How long before that would.
Start to impact.
Oil and gas due to the business and then kind of along with.
What what what's your mix in terms of like maintenance or integrity pipeline work.
Versus like new large pipe.
Construction work.
Yes, so a couple of things right. When we think about oil prices were looking at a very specific point in time.
Most people around the world there at home or oil demand has plummeted.
When people get back to work oil demand will increase I don't if there's any question about it in the questions are all around how much production how much will production drop across the world and how quickly will it take demand to catch up to those levels and I think we could argue all day about what the right answer to that is and I think nobody really knows why probably personally I have a a more.
Favorable view that thats kind of catch up quicker than that I think what most people think.
So I.
I think that over the course of the next year, we're going to see a recovery to oil price I don't think you're going to see oil prices stay where they are out for a long period of time.
With that said right and we highlighted in our remarks I think it's important to only 6% of our work over the last three years has been attributable oil pipelines.
There's a whole other play here, which I think is going to be interesting and again I don't necessarily know, how it's going to play out but with all of these swallow the oil production comes a significant amount of gas.
It comes out of these same walls right. So there's been an overabundance of natural gas for a long time for last couple of years in this country a lot of that had to do with the amount of drilling that was happening as that goes away I think we're going to see a pretty significant price increase on gas because they're just going to be less supply of it and.
What I think happens because of that as you going to pad and big price differentials around the country and that's going to create a significant amount of opportunities for us I believe so I think it's still to play out again I think one of the things it's important about mostek as we have significant runway with the backlog and projects that we have in Q that are going to give us time to see how the industry.
Plays out.
The time to recover so I feel good about 20 I feel good about 21.
I don't think they're ultimately the long term drivers in the business that we've talked about which is in a large.
Electric utility plants that are fired on gas whether its LNG I still think the long term trends are that are going to be positive and create a lot about opportunities for us. So I think it's early time will tell integrity as a portion of our total work has significantly increased over the last couple of years. So.
No that I know that's the biggest question on everybody's mind related Tomasek is what happens to the future oil and gas business, we feel good about it right and even to the extent if it does decline we feel good about the rest of our business, making that up that's our challenge that's what we're here to execute on.
And that's where we're going to strive for.
Got it sounds great I kind of asked two questions. There so I'll hop back in queue. Thanks, guys. Thank you.
Thank you and we can then move to our next question.
This comes from no Noelle Dilts of Stifel. Please go ahead.
Good morning, and congratulations on managing throw this uncertainty well.
Thank you.
Okay. So I think both my questions and focus a little bit more on the telecom side on first when you're looking at some of these permitting challenges I'm curious how on the degree to what you're seeing that in wireless versus wireline inc., 18th you talked a bit about feeds within those challenges on it and call Bob right.
More.
Positive on that front, so curious how to think about that I think as much.
As market.
Okay.
Yeah.
So it kind of depends on the work function right. So if you if you think about.
There are certain types of work, where it's less important than there are certain types of work that you can work on blanket permits.
Which really alleviates a lot of these concerns I think specifically as it relates to wireless when you think about small cells and the fact that small cells are being installed in.
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Heavily traffic corridors be a downtown's be at major streets, that's where the issues arise right, where you might have.
Cities are municipalities adult lot work happening in a particular area because of what's happening with the pandemic.
Or you need special permitting.
Not just from the city of municipality, but from the department of Transportation the state one.
Maybe some other state permits that's where it complicates it little bit more so theres functions of the work where I think it's very minimal impact and then there's other functions, where I think it's more important.
On the underground side, it's a little bit more intrusive right. So you have more I think there, it's a little bit more difficult and as you see the.
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The dependence of some of the new wireless and part you build outs with fiber and kind of.
It kind of inner season, what are the right. So it's it's a tough question and answer because there's lot of intertwined stuff that happens, but albeit the say there's portions of the business that aren't very aren't impacted and there's portions of the business that are more impacted and it's our job to manage through that and and I think everybody understands the pace.
At which they want to go.
I don't think the cities are municipalities are against that Theyre, just trying to have a lot of things to manage right now and.
What's our it's our job to get it up in terms of their level importance.
Okay.
And then obviously last year, we've talked a lot about you guys ramping up capacity in in telecom in anticipation of patent related spending on picking up so given from these late this year you know how are you thinking about capacity.
Jason on.
And.
Are you basically holding on to pickup in anticipation of that that ramp and kind of how do we think about the under utilization element that year.
Yes, so it's a great question one of the things that we try to do as a company is these are very uncertain times for everybody, but I think for those people that.
Our in the front lines that are depending on a weekly paycheck is probably even more important for them. So we've done everything possible to not furlough employees and to make sure that everybody's taking care of that Mostecka at the end of the day, we really view this as a family owned business and that's how it kind of started and we've always tried to keep those fundamentals in place. So we've tried to take care of our employees to the.
Best of our ability, even if it's Matt under utilization Theres No question that is having.
Some some impact to our margins, we spent a lot of money gearing up and really preparing.
And investing in our people. So we're not going to give up on that investment. So theres no question, there's a little bit of under utilization, especially in those markets.
That are that are either complete shutdowns or where you have limited availability to work. We're working through that we think at the end of the Dave that it's what our companies about and its that's why our employees are extremely loyal to us.
So having an impact I think the impacts going to subside as the quarters here.
And go.
So it's you know if we think about the year.
If you listen to our prepared remarks, we expect improvements in margins in our communications business, probably a little bit less than what we did coming into the year and there's no question that that has some impact on it.
Thank you.
Thanks No.
Thank you.
And then move to our next question. This comes from Jamie Cook of Credit Suisse.
Hi, good morning, nice quarter, and glad to everyone facing while I'm I guess my first question as they look at the oil and gas backlog.
I mean, there so in the quarter can you remind investors what sort of big pipeline integrity or other less cyclical businesses and just Florida.
Opportunity to grow the business outside of a big pipeline, which in and just the margin profile between the two.
And not the other parts of business became a bigger part of your portfolio what that would you margin.
My second question on I'm, a big pipe side Wow, we look at the Capex number and they look scary I guess I would say you know my second one is that you know players lots that are probably still no healthier financially capable I'm just wondering what you're seeing from here.
Competitor base, it can last healthy and even in a declining capex markets not my sense is continued together.
A portion of the Obamacare. Thank you.
Yeah, So Jamie one of the nice things about the backlog that we've been able to book.
No not just this quarter, but I think over the last couple quarters, it's not driven by any.
Single project write a few years back.
Single projects rather than a huge.
Sway our backlog Red So we were having projects that were north of $1 billion and that was impacting our backlog in a pretty sizable way, we're not seeing that right, where we've got a lot more jobs that are making up our backlog than we've historically had its a nice mix between all types of jobs, which again is important.
I think when you look at total Capex dollars for our customers you kind of going to break it down into all the different buckets to invest in a lot of different things not just pipelines, even the big pipeline operators have a lot of investments outside of pipeline. So you almost have to break it down into what they're thinking.
A lot of the guidance that's been put out for 21 and 22, although it's very early.
The directional guidance at a lot of these pipeline companies have given our strictly for approved projects and again, we're in a we're in a very unique time, where the market is has taken a significant downturn as that market improves we're very confident that other projects are going to make it onto their list because they are economically viable and as and I are already think we've seen some.
Right right some of some of our customers stock.
I had been significantly.
Impacted in deteriorated a lot of those have significantly improved in the last couple of weeks and I think that in in of itself because we're already seeing some more confidence from our customers relative to they feel better about their stock prices do better about the business longer term and I think overtime thats going to show so I.
I think you're also right about the comments of where we stand in the industry.
There's a handful of larger players that are going to be fine. There is lot of smaller players it won't be around and ultimately that's that takes away capacity and it gives us a better better opportunity. The reality is that the customer mix that we're always trying to work for isn't necessarily working with a lot of those.
Smaller player than a lot of the companies that will ultimately fail or even from a customer bases companies I won't make it are usually using contractors that are a lot smaller so as the business consolidates with the bigger players from our customers perspective, that's also good from Austin.
Okay. Thanks, Peter intake anyway.
Thanks, Jamie said.
Thank you then moved our next question this comes from Andy upsetting.
Good morning, Thanks, guys.
First question is on the communications margin, so margin as being relatively sticky added roughly 8% range and you are expecting upticking that going forward. So the improvement really just higher revenue or is it better mix of project work and you have any concern how silver this thing seen measure as my negative net.
The impact that.
Yes, so I think a lot of it and we've talked about over the course of last year has been just.
Our gearing up for the demand that we know is coming right. So.
A couple of questions ago, we talked about utilization. There is no question that utilization levels are aware.
They can ultimately be and and I think we're going to and that is a function of just having more work in putting people on jobs.
Doug.
Everything that's happened in the last month or so has impacted that right. Because you just you have.
It's just every everything's become a little bit harder right shows things normalize we think thats going to we think we're going to start making and continue to make improvements to those utilization levels. If you again in our prepared remarks, we talked about there being a margin improvement on a year over year basis overall or at least 100 basis points front, a full year basis, we still expect that right.
And that's and that's that's a lot better than that.
Better it's not exactly where we wanted to be we think that that number continues to increase.
As hopefully when we look at 2021 and a four year basis that number increases significantly more than that so we feel really good where we are where we're positioned again, we've been we've been building our resource base based on the work that we think is coming something very similar to what we did in the oil and gas business. A few years ago and I think as you saw the margins came and followed on that and we've talked a lot about.
The similarities between that in our communications business, we still expect that to be the fact and the case.
Obviously, we need to it we need all the players in the industry to be up and running I think we're getting really close to that.
Okay. Thanks, and then my follow up is on the electric transmission projects. So.
Backlog has been bouncing around a little bit any in the currently environments.
There are some concern about utility could lower capex. So are you seeing India increments of projects segment.
Yeah, we're seeing a theres a huge pent up demand. So theres a lot of projects that are currently in the mid cycle. Some bids have been delayed because of the you've got people that are just at home and so we've seen of.
A number of bids that we thought we come out in this period that are now being delayed a month or do not.
Not huge delays, but obviously, we think theres going to be a huge pent up demand on everything opens up there is going to be a lot of bids that are going to become an out of the same time, there's a lot of work in that industry I don't I think the all the all the fundamentals for the industry are really solid if you think about storm just system heartening for storms fires and everything that has that's not going away.
Got the renewable aspect of other renewables that are being built that require significant build out.
You got reliability issues, so I I don't.
I think it's a very strong market and one that I don't think we're going to see any change to the investment profile that market and anytime soon.
Okay. Thanks.
Thank you and we can I move to our next question. This comes from Andrew Wittmann of Baird.
Yes, great. Thanks, I wanted to ask a couple of questions here on the pipeline oil and gas segment here. It's just simply just speaking about the fact that that you are expecting the work to ramp in the second half of the with so many change things changing in the customer set I guess I wanted to understand.
How much of what percentage or how you're thinking about the level of fully permitted and fully authorized to proceed jobs that youre banking and during the second half of the year. If you could just talk about that that'd be helpful.
Trending so we've got a couple of job slated to start a late in the second quarter.
We've actually mobilized on on.
On a number of them already so we're doing very early work it's not.
A lot of people, but it's obviously a great indicator as to when these projects are going to start. So again a lot of this has to do it just permitting and time and a lot of that's been right to schedule. So we feel really good about the start dates.
That we've got plans I think we've been conservative around what we think the productivity on those jobs are going to be for the balance of the year.
So we've built some room in there and case or some slips, but we feel really good.
Across our different jobs when the start dates are.
Where we're headed to what's required to start them.
And again.
It's not inconceivable that one could slip a month or two but but were we feel really good about where we are and how we kind of model that up.
Yes, you just mentioned that productivity kind of the second time, you referred to that you mentioned that maybe some of the social distancing requirements are going to make some of these jobs run out take a little bit longer.
That sounds like it also could mean that they're more expensive I was wondering how this factors into the margins that you expect to realize off of these.
Jobs or if.
Just starting the prices in.
Jobs, where the RFP is in your hands and it's coming back.
Yes, so I think I'll.
We've alluded to on the call as well right.
Our jobs or a mix of.
You know project, whether its unit cost or fix price and then costs boss rights on the cost plus jobs. They tend to have a little bit less of a margin.
In the rest of our business, so as our cost plus jobs ramp up the overall margins of the business the profile drops a little bit.
Which is why we go from being in the Twentys of the high teens.
And I don't think that any of these there's issues or social distancing requirements are going to impact the.
The fundamental belief of where our different margin profiles are so we still expect the same thing right. There will be larger mix of cost plus in the second half a year because some of the jobs that we start will be cost plus so we'll see a little bit of drop in margin second after year versus first half, but the fundamental margin profile the different pieces of work shouldn't be materially different.
Great. Thanks.
Thank you.
Our next question first question Adam.
Polymer pumps and Davis.
Hey, good morning, guys.
Hey.
Hi, Thanks.
It impacted your long term outlook for telecom at all.
Not at all right I think it's it's a it's interesting.
It doesn't change any of the thesis we've been talking about right. So our customers are still very committed to that technology they want to deploy.
I think if anything it's a they want to do it more rapidly right I think with everything that we've seen we've seen how important technology is in just about everything we do our customers understand that I do think theres going to be opportunities.
The cost as our customers look at their business I think theyre going to look at their business different they're going to look at you know how they how they do the things that they do and I think there's going to be a great opportunity for further outsourcing as you think about the cost structure. So again I think there.
The fundamentals are in place nothing's, changing but quite frankly, I think there's going to be some really good opportunities that arise because of the lessons learned from funds and then.
Okay, and then second question on oil and gas that revenue ramp so you've gone from like $450 million revenue in Q2 to well over 1 billion in Q3 logistically speaking of that Don King at all or is that that's just the way. These companies are set up to operate.
Well I think if you look at our historical right if not much different than what we've historically done yet and that's pretty cut you know that typically third quarters is a big period for us we've done.
Well north of those amounts over the years.
It depends on project timing what not so.
Second after this year, we'll certainly be bigger I think the.
Third and fourth quarter will both be big I think when you look at it year over year, our fourth quarter. In 2019 was a little was it a little bit unit, because we had some some delays on projects. We broke early for winter. So have a bigger growth in the fourth quarter, but they're gonna be both very strong in terms of revenue and that level of revenue is not.
It's something that we have done a multiple times over the years.
So we did about a billion to in the third quarter 17, Adam and if you look at our that's not really were expected to do lesson that in this third quarter. So it'll still be a significant ramp from Q2, but.
We don't.
We won't have to get to the levels, we got two in 17.
Perfect. Okay. Thanks, guys.
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Thank you.
Our next question. This comes from shown Eastman of Keybanc capital markets.
Thanks, Steve Thanks for taking my questions.
First one for me I'm just curious.
As the sprint T mobile dish.
Deployment plan start to ramp up.
Yes, it seems like there's a couple options you know they can do some stuff in house.
If you go with these program manager type companies.
Or local operators I'm just curious how you think anti these capabilities are being viewed relative to some of those other options and.
Just how you're thinking about MTV the addressable scope.
The deployment plan and start throwing off.
Sure I think today.
We're the largest wireless contractor in the United States.
I think everyone of those carriers knows that I think they understand what our strengths are.
Thank you I understand what we bring to the table and I think we have tremendous opportunity with all.
Okay.
Okay, and then just higher level today.
Clearly just with this backdrop the oil and gas exposure is really in focus.
Arguably a drag on the valuation you guys are getting so I'm just curious if you're spending a lot of your time looking at new growth ventures outside of oil and gas or whether you just let the numbers speak for themselves.
With that business mix you have today and you know if youre looking at expanding I'm. Just curious if it's more new end markets, new geographies or just capturing more out of the supply chain in your existing end markets like you did with quite young any thoughts on that business development stuff, you're thinking that would be really helpful.
Sure. So I don't think it's changed right I think we're always looking at different alternatives for the company and different opportunities.
We love the businesses that were in quite frankly, and I'll be honest I love the oil and gas business I think that.
We're going to see.
It is.
It generally tends to be a little bit more cyclical because of the commodity prices.
No I think.
Really perform in that business I think we've got a great brand in that business offer some some great services and products and I think that's not going to change right at some point that market is going to come back irrespective of we all think I mean history repeats itself.
And we're going to be super well positions and so I know people don't want to give us any value for that business with the reality is that I think we booked a very valuable asset in that business that overtime is going to perform extremely well with that said are always looking for ways to improve our business and get into things that maybe we're not in today.
I think as a result of this pandemic all of our customers are going to be looking for.
Ways to cut costs ways to do things differently. It in that are going to be a ton of opportunities available to us both in services that we provide today and quite frankly in new services.
When I think about the future of this country I continue to believe strongly that at some point, we're going to see an infrastructure Bill I think we've been positioning lasik for years to take advantage of an ultimate infrastructure Bill I think you're going to see that continuing ramp.
I do think it's going to come in some way fashion or form and I think we're going to be a huge beneficiary of it.
Now we're talking about today, because we don't have anything but as that becomes more clear, we'll talk a lot more about our strategy and what we've done to prepare ourselves.
But were you know.
What do we know we know that you know in the next 10 years mosques going to look different than what it does today right from 2007 is today.
We're very different company.
And we've been able to grow revenues from just under 900 million to over 7 billion and over the course of the next you 10 years, we hope to be able to do the same thing and grow.
Our revenue significantly and that's going to take our company looking looking a little bit differently over that time and quite frankly, that's what we love about our business. The fact that theres. So many different things we can be involved with with the customer base that we have and with.
Customers that are similar to the ones that we have so.
Again, we very bullish on our future and feel really good about where we're headed as a company.
I appreciate it thanks very much.
Sure.
Thank you you can I moved to a final question is comes from Steven Fisher of yes.
Thanks, Good morning, guys.
Hey, good morning.
Good morning, I see it did beat expectations for Q1 with when you had about one month left in the quarter I guess Im curious as we look forward here to Q2, and the 2020 guidance to what extent would you characterize these guidance levels as conservative.
Or to the market conditions that we have now just really make any sort of characterization difficult.
It's a good question and one that that obviously, if we debated.
I think most companies decided not to give guidance and I think most companies have withdrawn guidance across the universe and I think a lot of it has to do with you know theres still a lot of uncertain times ahead, we have no idea. What this pandemic is going to ultimately mean, if it's going to come back what impact it will have on society in general so.
We felt strong enough that we have enough visibility to be able to provide guidance and at the end of the day. We thought it was important for our shareholders to get a value on a value of what of what our knowledge isn't what we think and where we think we're adding so they could have some visibility into we see 2020.
By giving that visibility obviously, we didn't want to get ahead of ourselves. So we wanted to put out numbers.
We feel very comfortable with.
And I think we've built risk into those based all the unknowns that exist and I think that speaks to the strength of bostic right. The fact that we have that visibility. The fact that we believed enough in it to be able to put out guidance when so many arne and and and put it out with confidence right. So there's no question that things.
Great and you know this passes and there's very little impact to it than yeah. These numbers will probably prove out to be conservative and.
If it doesn't and some things happen, we still feel with high confidence that we'll be able to hit.
This range so that was our thought process behind the guidance, we feel good about it.
We hope that and we pray that everything finishes and there's no more impacts from this and like returns to normal as early as the next few weeks and.
And we forget about it but I don't I'm not sure that that's the case either so I think we tried to come up with somewhere in the middle and again, we feel very good about the numbers that we provided.
Okay. Thanks for taking the crack at it.
In terms of.
Howard you ended industrial margins, just I know you talked about in the prepared remarks, some of the factors that driving some of the volatility there in terms of efficiencies and and higher fixed cost, but I guess I'm curious about how to think about this going forward because as you do face them longer term headwinds.
Oil and gas business.
Yes, you do it seems like have robust revenue business there to.
To make a difference in contributing more meaningful profitability. So how should we think about the volatility in those margins and the quarterly profit rates are swinging pretty dramatically. So.
What's the prospects for for really kind of producing a larger profit base in that segment. Thank you.
Couple of things first the businesses and hyper growth right I mean, the growth rates that we've been able to achieve in that business over the last couple of years I think have been remarkable I think they've been has any good as good as any growth rates. We've had in any business that we've been involved with as a company.
When you look at full year, 20 guidance and really the narrative that we've put out we expect about a 150 basis point improvement in that business on a year over year basis from a margin profile, which is really solid with that said you know as the business gets to normalized growth rates right, 50% growth rates are significant and that's why we've been enjoying that are better.
Her there's inefficiencies and costs that are associated with that so overtime that business will appreciate from a margin profile.
We expect that business to be higher end up in the high single digits in the in more of the near term. The next couple of years and then we do think Theres an opportunity over a longer period of time to maybe even get to low double digits.
We hope to be able to speed that up and make it faster, but we think those are realistic targets, we're working our way into that and again, we're just we're thrilled with the pace of the business and where it's headed we know that margins are the issue. When you look at first quarter first quarter is a tough quarter for us in that business. We've got a lot of jobs in markets where.
Weather's bad where there's lot of smell.
Significantly impacts.
The margin profile that business. So it's always it's generally going to be our weakest quarter I think you'll see.
Quarter over quarter improvements in that business the trends up nicely, we understand what though with the risks are we understand with the profile it needs to look like and we think will on our way. So we're pretty excited about what that segments going to do for us over the long term.
Terrific, Thanks very much.
Thanks.
So I think what that this concludes our first quarter 2020 call. We thank you all for participating and we hope and pray that you all stay safe.
And stay healthy and we look forward to updating you on our next call. Thank you very much.
This concludes today's call. Thank you all for your participation you may now disconnect.
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