Q2 2020 MasTec Inc Earnings Call
Welcome to must take second quarter 2020 earnings conference call. It means people cast in July before she past 2020.
Let me remind participants on today's call. It's being recorded I thought this time I'd like to kind of called out your host they liked Louis most takes vice President Investor Relations like.
Thank you Sarah and good morning, everyone.
Mostek second quarter call.
Statements made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act or battery 95.
He's communications, we may make certain statements that are forward looking shut your statements regarding <unk> future results plans and anticipated tranche industries, where we operate these forward looking statements or the copies your expectations holiday. The initial broadcast of this call and the company does not undertake to address these expectations based on subsequent events or knowledge various.
Risks uncertainties assumptions are detailed in our press releases and filings with the FCC should one or more of our risk <unk> functions.
Prove incorrect or should be.
The information be changing the results may differ significantly from resulting structured flattish communications.
In today's remarks, I imagine that we will discuss adjusted financial metrics as discussed in reconciled in yesterday's press release in supporting schedules. In addition.
We may use certain non-GAAP financial measures in this conference call a reconciliation of any non-GAAP financial measures not reconciled and these comments to the most comparable GAAP financial measure can be found in our earnings release, our 10-Q or posted on the Powerpoint presentation located in the Investor section of our website located at Mostek Dot com.
Just to note on the 10-Q availability.
Got it tended to fall within the thank you once it gets me she says five P.M. yesterday, but I actually see filing system, which has prevented the filing for being uploaded an accessible we expect this will be resolved shortly.
With us today, we have Jose Mas, our Chief Executive Officer, and George Pita, Our executive Vice President and Chief Financial Officer.
For the call, we'll be opening remarks analysis the house I thought about financial review from Georgia. These discussions where we fall about you any period and we expect to call for last about 60 minutes.
We had another great quarter and water important things to talk about today, so I'm not trying to call over Jose Jose.
Thanks Marc.
Good morning, and lock in the Mastrich's 2022nd quarter call.
I hope and pray that everyone's family is healthy and safe.
We are truly in a challenging and unprecedented times as we continue to manage through the cobot 19 pandemic.
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 Mastrich.
Their sacrifices resilience creativity and commitment have been inspiring.
Millions of families throughout the U.S. rely on the power communication 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 for their sacrifices and their hard work.
First a quick recap of our second quarter.
Revenue for the quarter was 1.569 billion adjusted EBITDA was 166 million.
Adjusted earnings per share was 95 cents.
Cash flow from operations was roughly $295 million and year to date cash flow from operations was 497 million.
And backlog at quarter end was the second quarter record at 8.2 billion.
We had a solid second quarter.
Meeting, our revenue guidance and exceeding our guidance for EBITDA and EPS.
It's important to keep in mind that most of our services have been deemed essential under state and local pandemic mitigation orders and all of our business segments have continued to operate.
We are managing through the Kogan 19 challenges, including first and foremost the safety of our employees and their families and other challenges, including governmental permitting crew social distancing mitigation and the impact that that may have on project schedules and any potential project delays, our 2020 guidance.
Which George will cover in detail assumes the impact of these risk based on the best information we have as of today.
Well I'll cover our segments in more detail in a minute I'd like to focus on how I feel mostek is positioned for long term success.
I'm extremely optimistic about our future prospects, we're very well positioned to take advantage of the continued and growing investment in telepathy networks, including Internet connectivity and Fiveg.
The continued investment in grid reliability in the energy sector.
The growth of the clean energy sector.
As it relates to clean energy during the second quarter, we made a decision to rebrand our power generation industry <unk>, the clean energy and infrastructure.
We believe this better represents what we are actually doing today as this segment becomes a much larger an important part mastrich's future.
One of the nation's leading clean energy construction companies, we have experienced significant growth over the last few years growing revenues from 300 million in 2017.
Who over a billion in a half of expected revenues this year.
We expect continued growth in 2021 and.
And believe that by 2022 this segment will exceed the size of what our oil and gas segment is today.
Today, we also announced record of oil and gas backlog levels.
I'd like to offer some color on the segment's backlog.
First we are highly confident that all of the projects in our current backlog will be bill.
We believe this backlog represents our strength in the market and our ability to offer value while still a training solid margins.
We view this level of backlog as a significant competitive advantage as we do believe new work will slow down through the first half of 2021.
There will still be new work awarded but less of it.
Basically if you don't have a lot of backlog today, the next year and a half will be tough.
We do expect an improvement in the market as conditions improve and demand increases in a post cobot environment.
In the meantime between what we have in backlog and other work we had been negotiating with our customers. We believe revenue levels for our oil and gas segment in 2021 will be similar to 2020 levels, while George will cover guidance in detail later, we have lowered our annual revenue guidance in oil and.
Gas based on the delay of two projects, which would have been impacted by regulatory and judicial issues.
As I think about or 2020 guidance.
I think there are some important takeaways to highlight.
First in the midst of a pandemic our revenue guidance for 2020 is only down about 200 million for 3% less than 2019 full year revenue.
Within that our oil and gas revenue expectation is that it will be down approximately 800 million in 2020 from 2019.
That means the rest of our segment revenues will be up approximately $600 million versus last year in the middle of the challenging environment.
More importantly margins on a year over year basis are expected to be relatively flat at 11.4% EBITDA margins versus 11.7% last year.
Between both the pandemic challenges and impacts of demand and regulatory issues on our oil and gas markets I think our financial guidance demonstrates the strength of our diversified portfolio.
The efforts, we have made over the years of having a strong diversified service offering.
Now I'd like to cover some industry specifics.
Our communications revenue for the quarter was 654 million.
More importantly margins came in strong and were up 370 basis points year over year, and 380 basis points sequentially.
We're seeing strong demand from our customers as the work to meet the demands in this changing environment.
Cobot as help highlights the importance of our nation's telecommunications networks and our customers are working hard at providing their customers with reliable and high speed connectivity.
We expect this trend to continue and believe there will be renewed focus on continuing fiber expansions in the residential markets.
This coupled with the continued opportunities around fiveg deployment provide us with significant opportunities to grow our business.
While margins were much improved in the quarter, our revenue has been negatively impacted by cobot.
Our installation business has been impacted by strict mitigation efforts related to entering customers' homes and we continue to have a couple of large markets were work has been very limited.
Our guidance assumes these impacts continue through year end and also include the potential impacts of local permitting delays.
As some areas slow reopenings or even move back to more strict closures, we had been working with these cities the municipalities to bolster remote permitting capabilities.
Revenue in our electrical transmission segment was 124 million versus 100 million in last year's second quarter.
While margins had been improving over the course of the last year, we had a project that negatively impacted margins based on the change in environmental requirements. We believe these increased costs are mostly recoverable recoverable and expect the benefit in the second half of the year.
Backlog improved both year over year and sequentially and we made good progress on diversification within this segment.
We have been awarded for new MSC is or Master service agreements. As this has been a focus for us to drive consistent recurring work.
We believe we are well positioned for 2021 and beyond as the drivers for this segment remain intact, which include aging infrastructure reliability renewables and system Harden.
Between our strong backlog and the opportunities we see in the market, we expect to be able to deliver both strong revenue growth coupled with margin expansion in the coming years.
Moving to our clean energy and infrastructure segment revenue was 426 million for the second quarter versus 250 million in the prior year, 70% year over year increase we continue to achieve significant growth rates in the segment and backlog at quarter end exceeded 1 billion dollar.
Others.
Margins for this segment were strong at 7.1%.
And we continue to expect margins to improve over 2019 by over 100 basis points.
The size and scope of the opportunities we're seeing in this segment continues to grow.
We have made significant investments in this segment to profitably grow our business through organic opportunities.
We continue to add talent and resources to meet the increasing demand for our services.
While we've highlighted this segment more over the last few quarters I still think it's an underappreciated part of Mastecs portfolio.
Tween, both the opportunities provided by future clean energy initiatives and the potential for an infrastructure bill after the election. We believe this segment provides significant opportunities for long term growth.
Our oil and gas pipeline segment revenue was down as expected second quarter revenue was 369 million compared to revenues of 937 million in last year's second quarter.
We ended second quarter with backlog of almost $2.7 billion.
As a reminder, over the last three years only 6% of our revenues come from oil pipelines with the majority of our business being tied to natural gas.
We have off so focused on growing both our distribution and integrity business over the last few years and we are encouraged by our progress.
To recap we had a good second quarter and are confident we are mitigating the effects and impacts of the cobot 19 virus.
While times are challenging and uncertainty on certain opportunities always arise from these challenges.
Our customers are looking for ways to change and improve their business models and are looking for strong partners to help them.
In that lies our opportunity.
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 a strength.
I'm excited for what the future holds for mostek.
I'd like to again, thank the men and women are mostek for their commitment to safety.
Our 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.
Today I'll cover second quarter results.
Our guidance expectation for the balance of 2020.
Including the ongoing impact of the code 19 pandemic.
As well as our strong cash flow performance capital structure and liquidity.
As Mark indicated at the beginning of our call.
The 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 on our press release on our website or in our SEC filings.
In summary, our second quarter 2020 results were better than expected with adjusted EBITDA, beating the high end of our guidance expectation by $6 million.
The adjusted diluted earnings per share exceeding the high end of our guidance expectation by six cents.
These results also exceeded street consensus.
Adjusted EBITDA of $166 million, beating street consensus estimates by $14 million.
And adjusted diluted earnings per share of 95 cents being street consensus by 15 cents.
Second quarter 2020 results also continue our strong cash flow performance generating $293 million in cash flow from operations.
Reducing sequential total debt levels by $177 million.
Our first half 2020 cash flow from operations of $497 million represents a record performance level for Mastec.
We reduced total debt levels by $190 million during the first top 2020.
Despite investing approximately $130 million share repurchases and M&A.
This strong performance gives us confidence in our expectation that annual 2020 casual from operations will be at a new record level.
Remaining $600 million.
Subsequent to quarter end, we took advantage of favorable credit market conditions to refinance our four disseminates 400 million senior secured senior unsecured notes.
Which we have called for redemption in mid August.
Due to the strong demand for the new issue, our new senior unsecured notes offering was upsized by 50% to $600 million.
With a lower interest rate of 4.5%.
And extended maturity to 2028.
And overall better terms.
Our new senior notes offering expected to close in early August.
I will make further remarks, our capital structure later.
But suffice to say that our cash flow.
Capital structure and liquidity are in excellent shape, even stronger than last quarter.
And this combination affords us full flexibility to invest in strategic opportunities.
As well as giving us a strong advantage as we navigate through the uncertain economic climate, resulting from the covered 19 pandemic.
Now I'll cover some highlights regarding our second quarter segment results and guidance expectations for the balance of 2020.
Second quarter 2020 Communications segment revenue of $654 million was basically flat with the same period last year.
Second quarter 2020 communication segment, adjusted EBITDA margin rate was 11.7% of revenue.
Representing a sequential increase of 380 basis points when compared to the first quarter of 2020.
And a 370 basis point improvement when compared to last years second quarter.
As Jose mentioned in his remarks. This performance level includes disruption and lost revenue related to the cobot 19 pandemic.
As we had selected markets in which construction work slowed and in some cases stopped due to local municipality permitting approval delays.
We believe that the evolution towards Fiveg technology.
Coupled with increasing remote workplace and education trends in the us because of the covert 19 pandemic will drive significant long term demand for our wireless and wireline services in 2021 and beyond.
As the covered 19 pandemic effects begin to normalize.
As we look through the remainder of 2020, we expect second half 2020 Communications segment revenue levels will approximate first half 2020 revenue levels with some continued disruption and lost revenue primarily from local municipality permitting issues related to the covered 19 Brent.
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We're also increasing our annual 2020 communications segment adjusted EBITDA margin rate expectation by approximately 100 basis points and now expect that communication segment annual 2020, adjusted EBITDA margin rate.
I will approximate 10% revenue.
Which equates to a 200 basis point improvement over last year.
While we're pleased with the expected 200 basis point improvement in 2020 Communications segment, adjusted EBITDA margin rate, especially in light of challenging conditions in 2020.
It is important to note at this performance level still leaves ample room for future improvement in 2021 and beyond as pandemic conditions normalize and telecommunications market trends continue to develop.
As expected and previously communicated second quarter, 2020 oil and gas segment revenue of $369 million decreased 61% compared to the same period last year based on project start time.
Second quarter, 2020 oil and gas segment adjusted EBITDA margin rate was 21.7% of revenue continuing our strong performance trend.
With this performance, including the benefit of project mix comprised of reduced levels of lower margin costs plus activity.
And continued strong project productivity on numerous smaller pipeline projects.
During the second quarter, we were awarded approximately $450 million and new oil and gas project awards, bringing the total of new backlog additions during the first half of 2022 approximately $1.5 billion.
Second quarter, 2020 oil and gas segment backlog of $2.66 billion represented a new all time segment backlog record.
First half 2020 oil and gas segment award activity gives us strong visibility for solid project activity over the next 12 to 18 months.
That said.
Good thing the project start tightening has become more difficult due to the impact of regulatory and judicial challenges.
Given the size of our large projects a 30 day delay in project activity could impact monthly revenue by as much as $100 million to $150 million.
Our current annual 2020 revenue guidance expectation incorporates revise project start dates for two large projects with late summer early fall start dates.
This resulted in annual 2020 oil and gas segment revenue now expected to approximate $2.3 billion with solid backlog activity shifting into 2021.
Given that the majority of project activity shifting to 2021 is related to lower margin cost plus activity. We are increasing our annual 2020 oil and gas segment adjusted EBITDA margin rate expectation from the high teens to the low 20% range.
Second quarter 2020, electrical transmission segment revenue increased approximately 24% compared to the same period last year to approximately $124 million and segment adjusted EBITDA was a slight loss of approximately $3 million.
I suppose I indicated during the quarter, we experienced production inefficiencies as we work towards completion of a project.
The project is approximately 90% complete as at the end of the second quarter and we expect to recover a portion of these inefficiencies from our customer during the back half of 2020.
As we look towards the remainder of 2020, we expect electrical transmission segment second half 2020 revenue will approximate first half 2020 levels.
With second half 2020, adjusted EBITDA margin rate for this segment expected in the high single digit range.
Our second quarter 2020, electrical transmission segment backlog of $551 million increase sequentially, 27% or $117 million when compared to the first quarter.
And this supports our continued belief that end market conditions for this segment are supportive for strong 2021 revenue and adjusted EBITDA growth in this segment.
Second quarter, 2020, clean energy and infrastructure segment revenue of $426 million increased approximately 70% compared to the same period last year.
Second quarter 2020, adjusted EBITDA margin rate was 7.1% of revenue a sequential increase of 540 basis points relative to the prior quarter and 360 basis points compared to the same period last year.
We're pleased with the second quarter 2020, adjusted EBITDA margin rate improvement in this segment, which begins to reflect our longer term expectation of potential for this segment in the high single digit range.
I suppose they indicated his remarks, we expect strong annual 2020 revenue growth and improved adjusted EBITDA margin rate performance when compared to last year.
With continued growth expectations into 2021, and a very active clean energy market.
Now I will discuss a summary of our top 10 largest customers for the 2022nd quarter period as a percentage of revenue.
Agency revenue derived from wireless and wireline fiber services was approximately 16%.
And install to the home services was approximately 3%.
On a combined basis. These three separate service offerings totaled approximately 19% of our total revenue.
As a reminder is important to note that these offerings, while falling under 118 peak corporate umbrella are managed and budgeted independently within that organization, giving us diversification within that corporate universe.
Permian Highway pipeline was 10% of revenue.
Verizon comprised of both wireline fiber.
And wireless services was 6%.
You have a drama Comcast and XL energy were each up 5%.
And Nextera energy energy, Duke energy and enterprise products, where each at 4%.
Individual construction projects comprise 64% of our revenue with Master service agreements comprising 36% once again, highlighting that we have a substantial portion of our revenue the right on a recurring basis.
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Lastly in its worth noting as we operate in a cobot 19 induced period of macro economic uncertainty that all of our top 10 customers, which represented over 66% of our second quarter revenue.
I have investment grade credit profiles.
Now I will discuss our cash flow liquidity working capital usage and capital investments.
During the second quarter, we generated $293 million in cash from operations and ended the quarter with net debt defined as total debt less cash of $1.19 billion, which equates to a very comfortable leverage ratio of 1.6 times.
We ended the quarter with Dsos at 90 days compared to 102 days last quarter.
During the first time for 2020, we generate a record level $497 million in cash from operations, which allowed us to reduce our total debt levels by approximately $190 million.
While investing in approximately $130 million in share repurchases and M&A.
During the first half of 2020, we repurchased approximately 3.6 million shares or approximately 5% of our cost any share base with the vast majority this activity occurring in the first quarter.
Regarding our share repurchase program, we expect to Opportunistically invest in this program as conditions warrant, while also prudently managing our balance sheet.
We currently have $158 million and open repurchase authorizations and as of today have not executed any share repurchases during the third quarter.
We are fortunate that our business operations profile typically generates significant cash flow from operations affording us the flexibility to invest strategically in efforts to maximize shareholder value.
Based on our strong first half 2020 cash flow performance, we are increasing our expectation for annual 2020 cash flow from operations to approximate $600 million a new record level.
This cash flow performance expectation incorporates our view that second half 2020 revenue levels will accelerate thereby increasing our working capital investment as we close out the 2020 year.
As previously indicated we Opportunistically took advantage of market conditions. After the end of the second quarter to further strengthen our capital structure through a successful offering of $600 million in new senior unsecured notes maturing in 2028 with a favorable 4.5% coupon.
This operating has started to close in early August and will allow us to redeem our existing 400 million foreign seven 8%.
Senior notes.
At a lower interest rate.
Extend our maturity profile and will increase our overall liquidity by approximately $200 million, which should approximate $1.3 billion post closing.
In summary.
Our record 2020 council expectation, coupled with solid long term capital structure.
Interest rates no significant near term maturities and ample liquidity places mastecs balance sheet and an extremely strong position.
Regarding capital spending during the second quarter, we incurred a net cash capex defined as cash capex net of equipment disposals.
Approximately $63 million and we incur an additional $80 million in equipment purchases under finance leases.
We currently anticipate incurring approximately $175 million and net cash capex in 2020, with an additional $115 million to $135 million to be incurred under finance leases.
Moving to our current 2020 guidance, our third quarter 2020 revenue expectation is approximately $1.9 billion.
With adjusted EBITDA guidance, approximately $254 million or 13.4% of revenue and adjusted earnings per share guidance at $1.67 cents.
We are projecting annual 2020 revenue to approximate $7 billion.
Adjusted EBITDA expected to approximate $800 million or 11.4% of revenue.
And adjusted diluted earnings per share to approximate $4 a 93 cents.
These guys expectations incorporate the impact of projected lower second half 2020 oil and gas segment revenue as regulatory delays on two large projects are expected to lower 2020 project activity and shift awarded work into 2021.
As well as improved 2020, adjusted EBITDA market adjusted EBITDA margin rate expectations.
Oil and gas and communication segments.
As we've previously provided some color as to our 2020 segment expectations I will now briefly cover some other guidance expectations as highlighted in our release yesterday.
Based on our expected strong cash flow lower nominal interest rates and our recent senior notes offering we expect annual 2020 interest expense levels to approximate $63 million with this level only including currently executed share repurchase activity.
Our estimate for full year 2020 share count is now 76 point serviced at 73.6 million shares.
It should be noted that valuation modeling purposes that based on the timing of repurchases. Our year end 2020 share count will approximate 73 million shares and Thats inclusive of the full impact of the repurchases made to date.
We expect annual 2020 depreciation expense to approximately 3.7% of revenue due to the combination of lower expected 2020 revenue levels and timing impact of 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 half 2020, 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 thanks to an annual 2020 adjusted tax rate that approximates 24%.
That concludes our prepared remarks, and we'll now turn the call over to the operator for questions and answers operator.
Thank you said.
Ladies and gentlemen should you have a question at this time. Please press star one if you find your question has been on Twoq has removed himself from the Q pressing star too.
Please note that you are welcome to ask one question.
Before returning to the Q.
I will now most of my first question today, which comes from Andrew Wittmann of Baird. Please go.
Yeah, great. Thanks, guys.
Less my first question here that I wanted to ask about was on the communications segment and obviously I think the margins are a highlight here that stands out to everyone. I was wondering in particular, what the driver was of that margin.
The revenues, where it's substantially changed so it doesnt appear on its face to be operating leverage but I was wondering what the primary driver there was and if it was particularly related to the headcount has since been something you've invested in and we know it's been dragging on your margins to this point I was wondering if business.
Particular change there thanks.
Yeah, Good morning, Andy So.
You guys could hit we obviously, we've been talking a longtime about the investments we've been making in that business to prepare for what we think is going to be really.
Active cycle.
And post call. Good we definitely slowed down what we were doing there relative to bring in new bodies and training as we get perfectly already around two of its obviously a lot harder to do that during the pandemic. So I think the results in the quarters. So what we're capable of doing when things are somewhat normalized right and.
We had a lot of backlog we had a lot of work that had been permitted ready to work. So we had very high utilization levels of the people that we have employed in the second quarter. So I think again I don't think there was there was nothing.
There weren't any outliers in this segment there wasn't anything that caused the spike. It was just generally really good solid performance across the board.
Quite frankly, I think we can do better I think there there were things in the quarter, the probably dragged down a little bit.
That should and will improve.
So long term I think it's the sign of what is the calm and what we're capable of doing.
Shorter term, we will probably start rehiring again soon as we get better clarity as to when things will start.
We are concerned about the permitting issues that exist out there. There are there are still some cities and municipalities, where we haven't been able to work.
We have worked through a lot of the backlog that we had at the time right. So now we need to and when I say backlog.
Not not backlog as in customer awards, but actually backlog of work ready to be perform so that obviously needs permits we need to get it at a permitting agencies. We've made a lot of strides around that I think we're taking a very conservative view as we think about the second half the year.
Assuming we're going to continue to have some challenges as some cities begin to close down again or are opening that reopening as quickly as we got so those are the challenges we face, but a good quarter.
I think we're going to have a very good second half the year not communications business.
Maybe not at that same level, but I definitely think it's it's it's a preview of whats the comments. It shows what we're capable of doing in a normalized environment.
And we think it bodes really well for our future.
Great Thats good color. Thank you for that from a follow up question I wanted to just talked about the importance of the end WP 12 permits and clearly we understand with the company is positioned about the importance of that is thats clear, but I was wondering or from a practical sense. How your customers are dealing with the channel.
Engines in this in other words.
What work are you doing today.
I just did have had and WP 12 permit issues are you are you working on those projects except for the water crossings. How are you managing that and then.
Yes.
Lot of the focus of these and WP 12 permits is certainly than the pipeline side, but there are actually applicable to the other parts of your business as well and I was wondering if there's been any crossover.
Impact from these on other segments of your business, Besides oil and gas.
Yes, just to be clear since that ruling since the original ruling happened there has been subsequent rulings.
That are pretty much negated that initial ruling with the exception of the Keystone project so outside of Keystone.
There arent issues around that permit anywhere else on any other project.
To date right anything at least anything in our backlog for sure. So.
Thank our customers are obviously tracking that.
But it is not impacting us today.
At all on any of our backlog projects.
And that is a very good thing that's happened.
During the quarter that happened during the Q2 so.
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That actually allows the rest of our stuff in our portfolio that hasn't started to go forward and start.
Okay.
That's fair.
[music].
Thanks and.
Thank you, we'll now move to my next question, which comes from Sean Eastland of Keybanc capital markets. Please.
Hi, gentlemen, thanks for taking my question.
I just started.
Just getting an update on the coms revenue trajectory here clearly a lot of permitting wants is too.
So the question around in the second house, but just as we think about next year with some of those key elements that are driving growth.
Namely that sort of sprint T mobile dish opportunity.
You know any updates there in terms of.
Activity ramping we did see they're starting to ramp up of workforce there.
Hasnt visibility around growth in comments.
Improved since we spoke to you last quarter.
Sure So I guess first.
Had not been for the impacts of coded I'm highly confident that we would have obtains our initial expectation on revenue for communications rates. Our communications revenue should have and could have been a lot higher in 2020, if not for some of the things that we've had to deal with since March.
I think our customers today are trying to get as much work as they possibly get done done.
Again with all the challenge that exist in place. So I don't think the long term pieces has changed at all I think it's actually improved relative to people understanding the importance of of the telecom networks across the country and the need for high speed data and connectivity of People's homes actually think our customers are thinking very differently about that on a go forward basis and they did I.
I think theres going to be a renewed push.
To get more fiber out across the country everywhere. So I actually think we're going to see a whole other wave that that's kogan, driven thats going to be very positive for our business for years to come.
I think when you think about T mobile and dish there definitely getting started we're seeing a lot more activity relative to what they're going to be doing in the coming years, our business with them has increased we are doing we've been very active.
Especially with T mobile over the course of the last few months of gaining territory and really putting ourselves in a really good position to take advantage of that from a from a long term perspective. So we're encouraged about everything that's happening we feel really good about where we stand in the market. We think we're the largest wireless contractor in the in the United States.
I think fiveg is going to have a massive impact on our business and it's coming right and I don't think anything's changed I don't think our our long term view has changed at all if anything it's gotten more positive relative to some of the things that have happened over the last few months.
Thanks, guys and next on the oil and gas you did mention.
You're looking at sort of flattish oil and gas revenue into next year.
Just given we've got some revenue pushing out of 20 into 21.
Just wanted to get a sense from you on.
What goes into that commentary from.
Contingency on on projects start timing et cetera.
That comment you know building in.
You know healthy amount of.
Frontier start just kind of curious how conservative maybe that next year flat oil and gas revenue might be.
Yes look I think this is the most important part of the massive story for so many people is truly understanding our oil and gas business and what it means and what it means long term. So I think for us to be able to sit here and say that our 2021 revenues going to pretty much equal or 2020 revenue is an unbelievable statement.
I think.
It happens because so much of our work has been pushed from 20 to 21. It means that we're having an extremely healthy 2021 relative to the market conditions and again I think that has lots of do with where we are in the business, where our competitive position is the fact that were low cost provider. The fact that I think we're going to come.
Venue to win market share in the business as others either leave the business get out.
Go bankrupt whatever it maybe it's going to be a challenging environment for a lot of people in our space over the course of the next year and I think we're in a really advantageous position to have the confidence of our customers and the work of our customers that's going to keep us very healthy through that process. I also think the market is going to improve I think middle of next year things are going to start to improve we're hearing about.
A lot of projects that are customers are on the bubble maybe projects happened maybe they don't I think it's a if anything it's a conservative statement that we're making around revenues were 21. The real question starts becoming what happens in 22 and 23 I think 22 will probably be slightly down from 21, I think we can maintain a solid book of.
Business in our oil and gas business long term in that.
In that $2 billion range.
From what we hear from our customers in the projects that we see coming and what we've tried to highlight in today's call was the change from 19 to 20, right our oil and gas business is down $800 million and 20 from 19, yet margins stayed the same so even if even if our business our business isn't going to be done and 21. So even if our business is down again in 2022, we think there.
The rest of lost it can make up the difference and if mostek is sitting here in 2022, and we're generating EBITDA levels of where we are today, which I think is a negative view from an oil and gas perspective.
Today, we're trading at less than five times EBITDA I mean, that's up.
Thats.
From a valuation perspective, we think thats a crazy number for the brand that we have and where we sit in the industries that we serve.
So we think old older time, we're going to recover we're going to be trading at our historical seven and a half day times multiple and when you run those numbers right. Our stock is incredibly over undervalued and has the potential of significantly increasing and we think thats historian mostek today irrespective of what you think in oil and gas if you're if you think it's a really negative store.
Irrespective of that for extremely undervalued.
Appreciate the color Super helpful. Thanks, So there.
Thanks.
Thank you and that is to my next question, which comes from handicapped at Citigroup. Please go ahead.
Good morning, guys.
Good morning, and again.
Good so if revenues revenue does stay a little weak in oil and gas over them.
In terms, what do you think of your ability to maintain price and you're very high margin. If you look at past pipeline downturns might be that come off a bit but at least so far this year when we get magnet stayed very high so.
Difference in the business now today, I mean, obviously, you're executing well, but any differences and financiers and pass that allow you to confidence in the margins hang up here.
Look I think we're a low cost provider in the industry I think when you look at the Universal contractors. It's out there. We're we're winning on price today or as much as anything else right, we're not being given work at at higher levels of price.
It's a competitive market, it's always been a competitive market.
Our peers don't make the margins that we do so they don't have room I mean.
The bottom line is the competitive peer group doesn't have room to significantly reduce prices and stay profitable.
So I don't think they will right. So I think at the end of the day, we'll we'll both will will both benefit from a reduction in costs because their payroll will go down there will be some things that go down we'll both be able to pass that through to our customers, but we should still be able to obtain the margin levels that we attain today relative to what's happening in the in the competitive peer group and we're having.
Confident of that.
And then again versus other downturns are revenue base oil and gas has become more diverse over the years I think so give any ability to mitigate you don't have a lot of large pipeline.
21 and 22.
Only been mitigate that through maybe it's more integrity gathering obviously you have all relatively light Canadian business, Mexico. So how do you think about the diversification the business and how that might help you over the next couple of years.
Andy I think it's evident in our first half results. This year, we don't have any large pipelines in our first half results. This year, we're not.
Thats why our revenues are as low as they are but look at our margin profile right. So I think this first half of of 20 actually exemplifies what our future business should look like from a margin perspective based on the fact that the large pipelines that we're working on or are pretty much all delayed until the second half of this year.
Thanks, good execution.
Thanks, Andy.
Thank you and I look to my next question from Noelle Dilts CFO. Please go.
Hi, guys that good morning, and congrats on good execution in a tough environment.
So argument.
Good morning. So my first question I had the you mentioned that infrastructure Bill.
In the context at the renewable energy Thats won't but I'm curious if you could expand upon that that just in terms of where you may or may not see some benefit.
Obviously, we feel brightness.
Global activity May drive additional transmission investment and then we're also hearing can talk ramp broadband. So just curious how you're kind of thinking about your positioning.
So first I don't think any of us know, what's going to ultimately be at an infrastructure bill and even if there is going to be an infrastructure bill right.
I think that coming out of this we're obviously going to need some type of economic stimulus and I think it's one of the few areas where both parties agree on something that needs to be done I do think telecommunications is going to be a part of it. If there is one so I think there will be some fiveg focus on it.
Regardless of whether those dollars go within that arena, it's very positive for our business I think we'll see the same thing from the energy side I think there will be some investments and the grid related to that.
But on a on a pure infrastructure basis right. When you think about.
Utilities on road moves when you think about.
Investments in in hard infrastructure via roads bridges et cetera. There are a lot of things that we can do around those industries that could benefit us.
That grew for us is a pretty well diversified business, we've historically been.
More clean energy than anything else, but we do have portions of that business that wouldn't be impacted directly by infrastructure spend and I think as as it becomes more clear and we kind of round out our portfolio, we'll be talking about that more in the future but.
I have no doubt the way we're looking at it is we've got a great business that's growing.
Predominantly around clean energy today, we touch other parts of that business that we think we can continue to grow and build upon that will position us really well around infrastructure Bill and we're focused on it we're keeping our eyes on it we're trying to listen to all the things that might be around that and position ourselves in a way where we can take advantage of so thats.
That's the focus in that business today.
Great. That's helpful. And then just in the context of that very strong free cash flow and.
It's coming down could you just remind us or.
Kind of give us some thoughts on how you're prioritizing.
Basically how you allocate capital here. So we look out over the next couple of years in terms of M&A, Sarah Croquettes on et cetera, and also within the M&A, maybe you could give us a sense at the markets that you kind of see at most intriguing at patent on that thanks.
Sure so.
You know M&A is a part of our story, we havent been Super active in the last couple of years, we've been talking about a much more active market today than what we've seen in the years to come in the years that that have just pass I do think of it has changed the mindset of a lot of private business owners I think a lot of people are reevaluating, where they stand and we're seeing a lot of assets.
That that potentially could move that.
We probably wouldn't have expected those assets to be available. So there's a lot of things that we like theres a lot of things that we're working on.
I would expect us to be active in the market over the course of the next 12 months, you know with that said right valuation.
As an issue for US right, we're trading at less than five times. So at some point, we have to where do we invest our money and where do we get the best returns.
We're sitting at just under 1.2 billion of that we've got an 800 million dollar.
Guidance number for EBITDA.
So I think this is going to be a mix and I think it's all going to be about where we trade what are we capable of doing.
I think across all of the segments that we serve probably with the exception of oil and gas we're going to be active we're looking for things and I think theres very attractive and interesting things, we can do and all those businesses.
Great. Thanks, so much.
Thanks norm.
Thank you went live to my next question, Alex We go with B. Riley. Please go ahead.
Great quarter gentlemen.
Thank you Alex.
Okay. Your cash flow as Matt you just mentioned that you're looking at.
Share repurchases and acquisitions across all segments, excluding maybe oil and gas.
In the past you bought targeted a lot of small acquisitions that it turned out to be fantastic transactions for you and we've done a few on the larger side, but as you look forward how should we think about that mix of size of M&A targets.
So it's a good question Alex I think we're we're interested in both right. So I still think we're really good at what we've always been really good at.
The size of those entities is probably increased a little bit.
I still think thats, our bread and butter right looking for companies that are anywhere from 50 to 250 million in revenue with the with the opportunity for us to significantly help them from a growth perspective, you know with that said there is some larger assets in place that that are interesting I do think we're going to see significant industry consolidation in the coming years I think it's important for our into.
Street, I think it will increase valuations in our industry. So.
I think you're going to see a mix of everything in the industry in the coming years.
Very helpful. And then can you provide some more detail what type of opportunities within the clean energy segment, given your growth expectations over the next two years what types of projects. How large are they what kind of risk profile that they carry.
Yes, So look I think we're learning a lot about it right I think we've kind of stuck our toe in the water and a lot of different areas and been very risk averse and as we learn more about those industries and we and we do bigger projects, we get more comfort around them, but today I mean, the bulk of our business is still around wind and solar.
It's more than half of what we do today and that clean energy space, but we're doing a lot of biomass. We're doing a lot of repowering projects were doing ethanol, we're doing biogas.
A lot of manufacturing type work around you know meeting their energy needs as manufacturing continues to grow so lots of different opportunities again, I think we performed really well I think the I think we could have grown that business a lot faster had we had the people in town in place. So I think we're trying to go.
Well at the level of which we can manage the tower I think theres a lot of.
Opportunities to continue to grow that business, Vienna, M&A as well just because we need bodies and we need talent. So it's very exciting I think I think theres.
Definitely a change in the trend of what our power generation is going to look like in this country over a long term and I think we're going to play an important role in it.
Thank you very much.
Thanks, Alex.
Thank you and I just want to next question Adam tool Hyman of Thompson Davis. Please go ahead.
Morning, guys.
Morning, Adam.
Hey, Joe you talked about them increased fiber demand postcode, if it is that something that you're seeing.
Seeing today or is that something that has to go through kind of months in months of engineering before you see it.
I don't think we're seeing it today I think today, we're seeing a reaction from our customers to meet the demands for their customers and the quickest way possible right, which means a lots of bandits to use to use an expression right, but I think theyve all recognize the importance of it and the business models associated with that you look at the earnings of some of our customers.
That have been posted just here in the last week and you'll see the benefits that they're seeing on that side of the business, which they haven't seen and on time. So I think now you have a renewed focus on their commitment to invest capital in that business.
Around pushing kind of activity to higher speeds and deeper into.
Closer to people wherever that may be and a lot of different methods right at that we're going to see a lot of creative things that come out of this do I don't think it's just going to be fiber I think theres going to be ultimate multiple opportunities to deliver those.
But no question I think that everyone of our customers is focused on it and try to figure out how to get their share of that.
Wallace.
Okay.
Yeah. So is there.
This is there like a pause that comes after are you still seeing strong demand as they kind of keep up with the.
Over demand or is that started to cool off and then there's a bit of a pause before the longer term investments kick in.
No there's no pods.
Okay, Yeah, okay. Thanks, a lot.
Yeah.
Thank you well now most of my next question from Jamie Cook of Credit Suisse. Please.
Hi, Hi, good morning, and nice quarter, I guess two questions on day, one the commentary made on the current cost prospects for clean energy are encouraging.
No pathway to get that business to sort of double digit margins.
You know over the longer time or are there structural reasons why that can't be double digit just based on what we've seen historically.
And then my second question No response to the comments that you made about you said over the long term revenue in oil and gas flat with 2020, but that maybe.
2 billion to more normal range, you might be other businesses offset.
Prospects that we would lose from oil and gas what are your assumptions on the other businesses is that just based on what you can do organically or do you need acquisitions offset that thank you.
Okay. So first part of the question on margins and clean energy I think that historically, we've been talking about high single digits. I think we're getting a lot more comfort about being able to achieve double digit margins in that segment overtime. So I think the margin profile in that business continues to improve and our outlook continues to improve we are again, we're making significant invest.
And some people today to grow that on organic basis, which cost money right I mean, it impacts your margins in the short term and it ultimately benefit your margins in the long term.
To a greater.
I think we saw a lot of that with what we did in oil and gas years ago. I don't think it will attain oil and gas margins, but I think we can get the double digit margins overtime and I think thats important relative to the oil and gas commentary I want to take a step back and make sure that I'm clear and people understand right I think we have one of the best Brad.
Ends of in the pipeline business in the United States, The best brand to be quite Frank and I think that you know regardless of how you feel about the industry and I know, there's there's lots of differing opinions. We are one that thinks there's going to be a good market. There for a long time irrespective of market conditions. We do think that market is going to come back and when it does we're going to.
Benefit and our oil and gas business should be very strong potentially stronger than the levels that we've historically seen with that said, we also know that in the middle term, we may see a slowdown so when we talk about that business being at 2 billion or around the 2 billion dollar level that is a negative view. It is not that is now what we think is going to be our long.
Term view of the business, but it could potentially get there.
And what we're trying to say is even if it does right with the growth that we expect in communication with the growth that we expected clean energy with the margin improvements with the growth that we expect in our transmission business with the margin improvements. There. We feel we were more than offset any declines at that business will provide in that 20 to 23 timeframe.
And even if it happens and even if our oil and gas business goes down shareholders Tomasic are going to hold an option into that industry. Because I still think we're a great way to play would ultimately happens in the oil and gas markets long term and we're a leader in that business when I leave in that business. We believe in that business. So all we are trying to do is create the perception.
Of what Mastecs valuation should look like whether you believe that that business is going to get better or if you actually dumped into business is going to get better and either way I think you have a path to significantly high stock appreciation irrespective of where that market goes.
Okay. That's helpful. Thank you and any M&A.
Do you answer now this is just organic comments.
These are just organic comments I do think we'll see M&A, which will be additive to the comments I just made.
Okay. Thank you congratulations.
Thanks, Jamie.
Thank you and then it's my next question, Thank Tom and D.A. Davidson. Please.
Thank you good morning.
Hi, David beyond kind of fiber and fives in small cell opportunities and heard a bit of optimism about the potential for kind of larger macro towers and maybe a pickup there people are.
The recall in adding suburban areas outside of.
The city do you buy that Youve seen in anything there.
I think we've always said it I mean, I know that the focus has been on other things relative to Fiveg, but if you go back to our commentary over the course of last few years, we've always talked about the importance of the macro cells and what they mean you can't you can't have what they want without it.
I continue to believe that that's going to be a sector of the business. The growth I think it's a very attractive sector of the business and one that you'll probably see has got more active in so it's it's up.
It hasn't changed our thesis Weve, it's been our expectation from day one.
Okay.
And then at Lumwana pipeline business that setting.
I'd prices economics, and got the side now these are we sort of regulatory permitting legal related circumstances, they've been extraordinary obviously for some of these projects and I'm. Just wondering you can talk about how are you seeing your customers.
Changing their strategies at all for new projects in terms of how they sort of bring me thing to to development is to try and navigate these disruptions.
Look it's yes. The answer is yes, right and I think that.
I think the other side right has actually been very smart about how they've gone about attacking these and they're not attacking them upfront their time attacking them after they start construction and they're going back.
The things that happened to in three years ago.
And bringing out deficiencies in what happened there to stop projects. So I think our customers have gotten a lot smarter around that and those things that they might have done that deficiencies are brought out against today aren't happening on a go forward basis. So the strategy that has been a employed against them wont work a year to from now now the question is will they.
Be able to develop other strategies at work or not that that's what we don't know, but I think our customers have gotten a lot smarter about being prepared once these things are permitted to have iron clad permits in place that that the arguments against some are going to have to be different than the arguments that have been made over the course of lost you too.
Yep, Okay. Thank you.
Thanks Brent.
Thank you as we have notified the question can the queue I'd like to kind of pull back host Mr. Jose mass for any additional for closing remarks.
All right. So we just don't want to thank everybody for participating today again want to thank the men and women and Mastec and.
Everybody. Please stay safe and look forward to updating on our next call have a great every weekend.
Thank you, ladies and gentlemen that will conclude today's conference call. Thank you Jason.
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