Q3 2020 MasTec Inc Earnings Call
Welcome to Mastecs third quarter 2020 earnings conference call Im actually brought customer characterize 2020.
Well, let me remind participants that today's call is being recorded.
This time I'd like to turn call over to Mr., Mark Mastecs, Vice President of Investor Relations Mark.
Thanks, Kevin.
Good morning, everyone welcome to Boston So critical.
If I look straight newspaper sector. The safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of actually not exact but.
These communications, we may make certain statements that are forward looking such as statements regarding mostek future results plans and anticipated trends in industries, where we operate these forward looking statements are the company's expectations on the day of the initial broadcast of this conference call and the company does not undertake to update these expectations based on trips I've got your knowledge.
Various risks uncertainties and assumptions or teaching our press releases and our filings with the FTC.
Should one or more of these risks or uncertainties materialize or should any of our underlying assumptions prove incorrect.
Actual results may differ significantly from results expressed or implied in these communications.
In today's remarks by management, we will be discussing adjusted financial metrics as discussed and reconciled in yesterday's press release and supporting schedules.
Actually we may use certain non-GAAP financial measures in this conference call a reconciliation of any non-GAAP financial measures not reconciled in these comments to the most comparable GAAP financial measure can be found in our earnings release or our 10-Q.
Located in the Investor section of our website located at Moscow Dot Com.
With us today, we have Jose Mas, our Chief Executive Officer, and George Pita, Our executive VP and Chief Financial Officer before the Cold box analysis by Jose followed by financial review from George These.
These discussions will be followed by two I agree that we expect to call. The last about 60 minutes. We had another great quarter I have a lot of things to talk about today. So I'll now turn it over to Jose Jose.
Thanks, Marc Good morning, and welcome to the Mastrich's 2023rd quarter call.
I'd like to thank you for joining us today, and I hope and pray that you and your loved ones are healthy and safe.
Monster continues to excel during these challenging in unprecedented times as we manage through the cold at 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 Boston.
Their sacrifices resilience creativity and commitment have been inspiring.
Billions of families throughout the United States 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 at Maastricht for their sacrifices and hard work.
First some third quarter highlights revenue for the quarter was 1.700 billion.
Adjusted EBITDA was 265 million.
Adjusted earnings per share was $1.83 cents.
Year to date cash flow from operations is $712 million and backlog at quarter end was 7.7 billion.
In summary, we had another excellent quarter and on track for another great year.
I believe the third quarter demonstrated the strength of Moscow fixed business diversification.
To me the highlight of the quarter was the growth of our non oil and gas segments.
Revenue for these segments grew at 19% and EBITDA for these segments grew at 83% on a year over year basis.
We expect continued growth of these segments in both revenue and earnings driven by a number of growth catalyst in both communication and clean energy.
Catalyst and communication include the continued rollout of fiveg and the ever increasing fiber opportunities tied to it.
The growing focus on increasing consumer broadband speed by both the telecom and cable TV carriers, and the launch and growth of a fiveg home product.
Green energy catalysts, including the continued focus on carbon neutrality.
As one of the largest clean energy contractors in the country, our expertise in constructing wind farms solar farms biomass facilities high voltage transmission lines sub stations battery storage and hydrogen enabled solutions uniquely position us to take advantage of growth in this market.
Now I'd like to cover some industry specifics arc.
Our communications revenue for the quarter was 645 million.
More importantly margins came in strong at 12.3% and were up 390 basis points year over year and up sequentially.
The pandemic has helped highlight the importance of our nation's telecommunication networks and our customers are working hard is providing their customers with reliable and high speed conductivity.
We expect this trend to continue and believe there will be a renewed focus on continuing fiber expansion.
In the residential markets.
To illustrate.
On an earnings call earlier this week the seat on the sheet overrides and said and I quote fiber richness of our network is a core element.
The CEO of Corning on their calls this week said that density to fiber necessary to deliver that's probably this is yet. Another example, illustrating that up to 100 times more fiber is required to deploy fiveg in the city then fourg.
And at a conference in September.
Do you have a chance you made two statements.
First he stated and I quote anything we can do to put more fiber out into the network serve both our consumer and business segments and use that to power would over time is going to become a much more dense and distributed wireless network. That's first of all one of our key focus areas and something we see as very important to us.
Followed that up and reiterated that priority number one is to make sure that we're investing in our core business and that includes fiber in making sure. We have broadband connectivity on Fiveg and when you think about those two are not dissimilar when you have a great fiveg networks, you're deploying a lot of fiber.
Based on those comments I think it's important to note the Maastricht wireline business has grown 180% over the last five years.
57% over the last three years and about 13%.
Over the third quarter of last year.
Couple this with the continued opportunities around Fiveg deployment and this provides us with significant opportunities to grow our business.
In September Samsung announced a 6.6 billion dollar deal with Verizon to provide network equipment in Fiveg radios the 2025.
He was like these are very important tomasik as they need to be in place for the next phase of network expansion to take place.
The analytics firm I Hs market estimates that over the next 15 years, the Fiveg investment in the U.S. will approach one trillion dollars.
Over the coming months, we expect show important government initiatives that will be catalyst to our business.
The first is the award of funds from the all digital opportunity fund to help bring high speed Internet service communities.
The second is the mid band wireless spectrum auctions expected later this year.
Both of those should lead to significant significant opportunities from Austin.
I believe we are entering one of the most exciting periods in the history of telecommunications and that the deployment of Fiveg wireless technologies and the associated networks is truly a game changer for the consumer.
Customers and from Austin.
Moving to our electrical transmission segment revenue was 129 million versus 103 million in last years third quarter.
Margins improved sequentially and we expect further improvement in the fourth quarter.
Backlog remains strong and improved year over year.
We are confident that we can deliver strong revenue growth next year as we have a number of new projects starting.
Scaling this segment is important for us as we strive to achieve double digit margins.
We believe we are well very well positioned for 2021 and beyond as the drivers for this segment remain intact, which include aging infrastructure reliability renewable integration and system hardening.
Moving to our clean energy and infrastructure segment revenue was $469 million for the third quarter versus 262 million in the prior year.
A 79% year over year increase.
Margins for this segment were strong at 7.3% and we continue to expect full year margins to improve over 2019 by over a 100 basis points.
The size and scope of the opportunities we're seeing in the segment continues to grow.
Between verbal awards and projects, we are competing on we expect backlog to hit record levels over the coming quarters and expect revenues in 2001 to approximate $2 billion.
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. Moreover, the.
The last few quarters I still think it's an underappreciated part of Mosfets portfolio.
Over the course of the last few months the focus on clean energy has been palpable we.
We have seen companies like shell Nextera, Duke energy and many others highlight their significant planned investments and lower carbon technologies.
As a leading clean energy contract or in partner Mostek is uniquely positioned to benefit from these investments.
Moving to our oil and gas pipeline segment revenue was 463 million compared to revenue of 973 million in last years third quarter.
Revenue was impacted by the effects of coated and its impact on demand for both oil and gas well.
Well this was already factored into our guidance. We also had two major projects that had been impacted by regulatory delays there.
Those projects, whose construction was expected to begin in the third quarter have now started in the fourth quarter with the majority of work slipping into 2021.
Looking at third quarter results large project activity represented a very small portion of revenue.
We believe that third quarter revenue levels are representative of what levels would look like without large project activity.
Margins for the quarter were very strong and positively impacted by the reimbursement of delayed project idle equipment costs without the associated revenue. These reimbursements had a significant impact on margin.
We expect a more normalized margin level as project revenues increase.
We ended the third quarter with backlog just over $2.4 billion, and we expect oil and gas revenues to increase in 2021.
Subsequent to quarter end, we had been awarded one large project and a number of smaller recurring type projects.
As a reminder, over the last three years only 6% of our revenues have come from oil pipelines with the majority of our business being tied to natural gas. We continue to see strong demand for integrity services gas distribution in line replacement activity.
We are focused on continuing to diversify our revenues in this segment.
I'd like to take a minute to cover 2020 guidance.
Today, we increased our EBITDA guidance to a range of $800 million to $811 million versus our previous guidance of 800 million we.
We lowered our revenue guidance to 6.4 to 6.6 billion versus our previous guidance of 7 billion.
The change in guidance is directly attributable to the two oil and gas projects I covered earlier, our initial expectation was the project was started in the third quarter.
Our range takes into account the possibility of further delays I'd also like to note our guidance at the midpoint of the range assumes an almost 1.2 billion dollar reduction in oil and gas revenues, while our total revenue will only be down about half that meaning that we will grow our other segments by nearly 600 million in 2000.
And the 20 again, showing the strength of our diversified model.
I'd also like to comment on our longer term goals.
As I think about our future business mix I think we had a solid path to becoming a $10 billion plus revenue company, even in a depressed oil and gas backdrop base.
Based on market opportunities, we believe our communications business should grow to three and a half to 4 billion in annual revenue.
Clean energy should exceed $3 billion.
Transmission over a billion and oil and gas on a recurring level to be about $1.5 billion to $2 billion.
To recap we had a good third quarter and are confident that we are mitigating the effects and impacts of the COVID-19 virus.
While times are challenging and uncertain opportunities always arise from these challenges are.
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 the 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 again like to thank the men and women of Mastec for their commitment to safety their hard work and their sacrifices keep up the good work.
Ill now turn the call over to George for our financial review George.
Thanks, Jose and good morning, everyone.
Today I'll cover third quarter results, our current guidance expectation for the balance of 2020, including the ongoing impact of the COVID-19 pandemic.
As well as our strong cash flow performance capital structure and liquidity.
As Mark indicated at the beginning of the call our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
Reconciliations and details of non-GAAP measures can be found in our press release.
Our website or our SEC filings.
In summary, our third quarter earnings results were better than expected with adjusted EBITDA, beating our guidance expectation by $11 million.
Adjusted diluted earnings per share exceeding our guidance patient by 16 cents.
Third quarter, adjusted EBITDA of $265 million represents a record level for Mastec and was achieved despite lower than expected oil and gas segment performance, which was impacted by delays in large project startups that have now initiated in the fourth quarter.
I suppose I noted it is important to note that year over year strength in our non oil and gas segments, namely the communications clean energy and infrastructure and.
In electrical transmission segment's, which on a combined basis. Despite COVID-19 impacts shows third quarter year over year revenue growth of 19%.
And adjusted EBITDA growth of 83%.
This performance highlights the strength.
Diversity and growth potential of Masa.
Third quarter 2020 results also continued our strong cash flow performance generating $216 million in cash flow from operations in.
Reducing sequential net debt levels by approximately $129 million.
On a year to date basis 2020 cash flow from operations of $712 million represented another record performance level from our SEC.
And we have reduced net debt levels by almost $300 million since year end 2019, despite approximately $150 million in share repurchases and other strategic investments.
As indicated in yesterday's release, we continue to expect that annual 2020 cash flow from operations results were marked the third consecutive year of record performance.
Regarding our capital structure my belief is that we have never been in a stronger position afford.
Affording us full flexibility to invest in strategic opportunities as well as giving us a strong advantage with our customers as we navigate through the uncertain economic climate, resulting from the COVID-19 pandemic.
Now I will cover some more highlights regarding our third quarter segment results and guidance expectations for the balance of 2020.
Third quarter 2020 Communications segment revenue of $645 million was down 5% compared to the same period last year and essentially flat sequentially.
Third quarter 2020 Communications segment adjusted EBITDA margin rate was 12.3% of revenue representing a sequential increase of 60 basis points and a 390 basis point improvement when compared to last years third quarter.
It's worth noting that this improved performance includes disruption and loss revenue related to a COVID-19 pandemic as we continued to have selected markets and which construction activity has been impacted due to local municipality permitting approval delays.
We expect annual 2020 communications segment revenue levels will decline slightly from 2019 levels with fourth quarter activity slowing sequentially and with a continued expectation of strong double digit revenue growth and 2021.
Based on our strong adjusted EBITDA margin performance over the past few quarters. We currently expect annual 2020 Communications segment adjusted EBITDA margin rate to improve approximately 230 basis points over last year's rate to approximately 10.3% of revenue.
We are pleased with the expect the communications segment adjusted EBITDA margin rate improvement in 2020, particularly considering the challenging conditions.
We continue with the belief that the evolution towards Fiveg technology, coupled with increasing remote workplace and education trends in the U.S. because of the public 19 pandemic will drive significant long term demand for our wireless and wireline services and 2021 and beyond.
As the COVID-19 pandemic effects diminish and conditions begin to normalize.
Third quarter, 2020 oil and gas segment revenue of $463 million decreased 52% compared to the same period last year.
Revenue fell short of our expectation I start up activity on selected large projects was delayed due to regulatory and judicial issues.
As a reminder, given the size of our large projects a 30 day delay in project activity can impact monthly revenue by up to $200 million.
As indicated in our release yesterday during the fourth quarter, we've initiated startup activity on two large oil and gas projects and accordingly, we expect fourth quarter 2020 revenue levels in this segment to increase substantially and exceed last year's fourth quarter level.
Due to the potential impact of final regulatory and judicial approvals are challenges coupled with the volatility of the onset of winter weather.
Our expected fourth quarter 2020 oil and gas revenue is presented in a range.
And we now expect annual 2020 oil and gas segment revenue to range somewhere between $1.8 billion to $2 billion.
Third quarter 2020 oil and gas segment backlog was approximately $2.4 billion and we have continued significant fourth quarter activity award activity, including the recent Keystone pipeline announcement by Tc energy.
In summary, we have clear visibility into strong 2021 revenue growth in this segment.
Third quarter, 2020 oil and gas segment adjusted EBITDA margin rate was 34.7% of revenue.
This continues our strong performance trend across numerous smaller pipeline projects as well as the benefit of approximately 10 percentage points for the combination of project close out and change order recoveries and contractual fees on selected delayed project activity for the recovery of idle owned equipment and.
Their costs.
As a reminder, the oil and gas segment requires significant capital investment and equipment fleet.
And these costs are primarily reflected in depreciation expense below the adjusted EBITDA line.
Looking forward as we close out 2020, we anticipate strong oil and gas segment adjusted EBITDA margin trends will continue into the fourth quarter with an expectation in the mid 20% range.
Third quarter 2020, electrical transmission segment revenue increased approximately 25% compared to the same period last year to approximately $129 million and.
And segment adjusted EBITDA margin rate was 7.1%.
We anticipate fourth quarter results for this segment will slightly exceed and generally approximate third quarter.
Third quarter 2020 backlog remains strong at $545 million and we continue to expect that market conditions for this segment are supportive for strong 2021 revenue adjusted EBITDA and adjusted EBITDA margin rate growth.
Third quarter, 2020, clean energy and infrastructure segment revenue of $469 million increased approximately 79% compared to the same period last year.
Third quarter 2020, adjusted EBITDA margin rate was 7.3% a sequential increase of 20 basis points and a 640 basis point increase compared to the same period last year.
During the last two quarters. This segment has generated approximately $900 million in revenue.
Adjusted EBITDA margin rate exceeding 7% each quarter.
And this trend begins to reflect our longer term expectation for this segment in the high single digit range.
We expect to close out 2020 with annual segment revenue and the $1.5 billion range, which equates to an annual growth rate in the mid 40% range.
We also expect that annual 2020, adjusted EBITDA margin rate for this segment will show approximately 840 basis point improvement over last year.
As I indicated in his remarks, we have continued and significant growth expectations in 2021 and beyond.
For this segment and a very active clean energy market.
I will now discuss a summary of our top 10 largest customers for the 2023rd quarter period as a percentage of revenue.
18, GE revenue derived from wireless and wireline fiber services was approximately 12% and install to the home services was approximately 3%.
On a combined basis. These three separate service offerings totaled approximately 15% of our total revenue.
As a reminder is important to note that these offerings, while falling under 180 anti corporate umbrella are managed and budgeted independently within their organization, giving us diversification within that corporate universe.
Whitewater midstream was 7%.
Permian Highway pipeline, EBITDA roller group, and Comcast Corporation, where each 6%.
Hey transfer affiliates, Xcel energy, Duke Energy Corporation, and Verizon Communications, where each 5%.
And Nextera energy was 4%.
Individual construction projects comprised 68% of our revenue with Master service agreements comprising 42%.
Once again, highlighting that we have a significant portion of our revenue derived on a recurring basis.
Lastly, it is worth noting as we operate in a COVID-19 induced period of macroeconomic uncertainty that all of our top 10 customers represented over 63% of our third quarter revenue have investment grade credit profiles.
Now I will discuss our cash flow liquidity working capital usage and strategic investments.
During the third quarter of 2020, we generated $216 million in cash flow from operations and ended the quarter with net debt defined as total debt less cash of $1.07 billion, which equates to a very comfortable book leverage ratio of 1.4 times.
As we have previously reported during the quarter. We also we also strengthened our capital structure with a favorable refinancing of our 478% senior unsecured notes and.
We ended the quarter with $238 million and cash on hand, as well as record liquidity defined as cash plus borrowing availability of approximately $1.4 billion.
During the nine months the first nine months of 2020, we generated a record level $712 million in cash flow from operations.
Which allowed us to reduce our net debt levels by approximately $300 million, while still investing approximately $150 million and strategic share repurchases and investments.
During the first nine months of 2020, we repurchased approximately 3.6 million shares or approximately 5% of our outstanding share base with the vast majority of 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 $159 million in open repurchase authorizations and as of today have not executed any share repurchases during the fourth quarter.
We ended the quarter with Dsos of 85 days down five days from last quarter.
Depending on the timing of our fourth quarter revenue activity, we anticipate some modest working capital usage as we close out 2020.
We are proud of the expectation the annual 2028 cash flow from operations will mark the third consecutive year of record performance.
In summary, our record 2020 cash flow expectation.
Coupled with a long a solid long term capital structure low interest rates and no significant near term maturities and ample liquidity.
Places mastechs balance sheet, and an extremely strong position to take advantage of any and all opportunities our markets afford us.
Regarding capital spending during the third quarter, we incurred net cash capex defined as cash capex net of equipment disposals.
Proximately $39 million, and we incur additional $41 million and equipment purchases under finance leases.
We currently anticipate incurring approximately $190 million and net cash capex in 2020.
With an additional $130 million to $150 million to be incurred under finance leases.
As we look forward into 2021.
Based on the investments we have made to date, we expect 2021 capex levels will decline significantly when compared to 2020 levels.
Moving onto our current 2020 guidance, our fourth quarter 2020 revenue expectation is expected to range between $1.7 billion to $1.9 billion with.
The adjusted EBITDA guidance, ranging between $250 million to $263 million.
And adjusted diluted earnings per share guidance between $1.64 cents to $1.73 cents.
We are projecting annual 2020 revenue to raise big range between $6.4 billion to $6.6 billion.
With adjusted EBITDA expected to range between 800 $811 million and adjusted diluted earnings per share to range between $5 and $5 or nine cents.
This includes your expectation of strong adjusted EBITDA performance across multiple segments.
As well as slightly improved expectations on below the line items, such as depreciation interest and income taxes.
These guys expectations incorporate the impact of projected lower 2020 oil and gas segment revenue as regulatory delays on two large projects are expected to cause lower 2020 project activity and shift award work into 2021 as.
As well as improved 2020, adjusted EBITDA margin rate expectations across multiple segments.
As we provided previously provided some color as to 2020 segment expectations I will now briefly cover other guys 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 $60 million with this level only including share repurchase activity executed to date.
Our estimate for full year 23, 20 share count is now 73.7 million shares.
It should be noted for valuation modeling purposes that our year end 2020 share count will approximate 73 million shares inclusive of the full impact of 2020 share repurchases.
We expect annual 2020 depreciation expense to approximate 4% of revenue due to the combination of lower expected oil and gas 2020 revenue levels and the timing impact of capital additions and acquisition activity.
Lastly, we expect our annual 2020 adjusted income tax rate will approximate 24%.
The fourth quarter tax rate expected to be slightly higher than the annual rate.
This concludes our prepared remarks, we'll now turn the call back to the operator for acuity operator.
Thank you if you wish to ask a question at this time, please signal by pressing star one on your telephone keypad.
Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment and please limit yourself to one question and one follow up you may rejoin the queue. If you have further questions again, Please press star one to ask a question.
Our first question today comes from Steven Fisher of UBI, Yes.
Thanks, Good morning, guys just wanted to.
Morning, just wanted to start off asking some questions about the clean energy business.
I Wonder if you could just talk a little bit about the project.
Projects, we're working on today.
How you see that changing into 2021 and 22.
To get to the targets that you have there.
And soon that would cover what what size of projects you're bidding on it and really kind of what the competitive landscape looks like or the types of projects that.
Me too.
The book in order to see which.
Senior targets, just kind of wondering what.
How should investors think about that.
The opportunity the competitive landscape and how confident we can be that you'll get to that target over the next couple of years.
Yes, Steve So I think the most important part right as you think about where we've brought the business from so just a few short years ago, we were a 300 million in our business and this year, we should exceed a billion five and we're talking about.
Approximating 2 billion next year and eventually grown that business. The three plus so I think that the.
The comfort should come in what we've been able to deliver over the last couple of years right. So I think we've proven our ability to grow the business now the question becomes what does the market look like and as the market afford us the opportunity to continue to grow as the growth rates that we've enjoyed in seen over the last few years I think thats. The most important piece right. When you look at the market I don't think Theres any question that there's a significant.
The increase in the level of activity I mean quite frankly, the the number of opportunities that we're looking at and as you know as we look at our bid schedules of the potential projects that are out there.
I mean, it's never even been close right. Its it dwarfs any number we've ever seen in the past so just with US winning our fair share of that we feel relatively comfortable that we can get to that.
Those levels and in short order.
Historically as you May remember, we were wind business right. We started this business is being a large win contractor today, we're a much more diversified.
And to be the our wind business is still a really good business in a business that's going to continue to grow, especially with the outage focus that we're seeing wins, but the reality is you other portions of the business or are growing much faster rate. We've got a solar business. So we started you know.
About a year ago, maybe just slightly over a year ago that business will probably exceed the size of our our wind business in the coming years, it's going to have a fantastic year in 2021, and Thats a big growth driver for us for 21 versus 20, we've significantly grown our biomass capabilities, our balance of plant capabilities, which we think is going to open a whole.
Slew of new technologies on the clean energy side for US we've worked on battery storage projects. We've worked on the associated transmission lines and substations that come with them. So it's just a very robust market. I think you see every one of the large utilities talking about their focus on clean energy and their move to clean energy and as that continues to happen.
We're going to be a big beneficiary of that.
That's very helpful.
Clearly as we lay out there are some really robust opportunities for your business is absolutely outside of oil and gas, but it still seems like the backlog.
These segments are still getting a bit lower so why do you think that is.
And when could we see that it's like more positively.
Oh, good impact here is that.
Kind of permitting this economic confidence, what's holding it back and one can see this really start to ramp up in the backlog.
We've always said that backlog isn't going to be.
They they consistent measure of where our business is growing like backlog is.
As a lot of timing based issues with the third quarter is a strong quarter for us, especially outside of oil and gas business. It was up high watermark revenue quarter for us across a number of businesses wouldn't which makes it difficult to add backlog at those levels. Historically, if you look at our backlogs the third quarter isn't generally the peak of our backlog levels. Because this is the quarter where.
Are we work the most backlog off so it's for US it's timing right. We do what we have the benefit of seeing that you as an investor Dawn is where we sit on whether its verbal awards negotiated projects.
You know what we're seeing from trends what were seeing that we're bidding on and I can tell you that when you think about clean energy we've never had a.
Hey, we've got a bunch of projects that I think we'll be able to announce in the coming quarters that will that will take us to record backlog levels. I think we said that in our prepared remarks, we expect to have record backlog levels and clean energy and we hope it happens by year end, but we also understand that something slip and it might be Q1, but in the coming quarters, we expect to have record backlog levels. When you see whats out.
Turning in communications and I know there is some frustration because we've been it's been talked about for a long time, but there's no question that that's coming right. The best of that market is yet to come and I think we're incredibly well positioned we know what's happening we're talking to customers. We know exactly what we expect and what's coming so I think it's a matter of time before you see it in our numbers transmission.
Good market, we've got some big awards that are pending where we've got limited notice to proceed that as soon as those contracts convert into full contracts, you're going to see a pretty big increase in backlog and quite frankly as crazy as it sounds we will probably be up in backlog in our oil and gas business yearend. Despite what should be a very good quarter. So.
Albeit that the headline may not look is great on backlog. The reality is that as a company weve never been in a better position than where we are today relative to the opportunities that are in front of us.
Terrific, Thanks very much.
Thanks, Steve.
Our next question comes from Andrew Kaplowitz of Citi.
Hey, good morning, guys.
Good morning, Andy.
Well, maybe just mention that frustration communications and revenue and as you know it can be made.
600 million dollar range for a while.
And the other thing relatively good so at what point do you think you added that you've had weather into the permitting maybe T mobile will take longer to ramp up.
Yeah, hi to extend it.
Thank God and that range is it really the first.
21, where you have pretty good conviction that you get set up on Scott's yet.
[noise] looked at my conviction is already high right. So I think it's I hope that comes clear today right I understand you know the numbers don't necessarily substantiated from from what you're seeing but my conviction is high rise my conviction Hot bunch of reasons right first we're living in a in a year in 2020 that is.
No not normal right, we're living through the cobot impacts that have affected all of our customers in different ways. A we've got a Verizon that is completing its or getting to the end of this first phase of construction moving goods second phase you got 18, Tiet and both rising that are counting on these spectrum auctions at the end of the year that are important part of their wireless.
Growth in the future you have things that are happening, where I think we're seeing you know.
Some slight slowdown as it relates to some customers in the second half of the year right with others that are that for from our business are doing a lot better right. So we've got a we've got a mixed bag within our communications business. If you look at our Comcast revenue there Comcast revenues were up 159% year over year in the third quarter. They were up 111.
Full year, you talked about T mobile, although it doesn't make our top 10 customer.
A very important customer for us and one quite frankly that we're actually pretty happy with what we've been able to accomplish to put it in perspective T. Mobile has 64 markets. They break out our work in 64 markets will makes T. Mobile different is we have to compete at a market by market level, it's not they're not national contracts are not like some of our other customers, but we've made it a.
Already to really compete and fight and win T. Mobile work when the year started we were in six of those markets. Today. We're in 28 out of the 64 markets. So what's our goal our goal is to win more work in each of those markets and ultimately expand the number of markets that we're in so we think we've made great inroads I think in the fourth quarter revenue to team over there.
Ultimately, 2% of total company revenues, that's fantastic that's a huge increase from where we started the year and from where we've been so I think we made a lot of progress there right. It doesn't necessarily you have to break it out customer by customer I think next year, hopefully you know they're going to have a shot to break our top 10, So thats tremendous progress with the customer that we did very little work one in 2019.
I think you're going to see activity levels from 18 to significantly increase next year versus where weve been I think you're going to see some of the same from Verizon writing some of the wireless opportunities that we're going to get to enjoy with rising and even destroyed dish hasn't done a lot. This year, but we know that they've got significant plans going forward. So for us it's for US it's evident right we know what with.
Conversations are with our customer we know what's coming we understand you know as you look at our numbers. Obviously, we have a fulfillment business. That's good that's significantly declined again, we think next year is going to be the first time that that business can actually hold its own and potentially even grow we think that's going to be a huge differentiator and as you look at our communications on a on a quarter over quarter revenue.
But I think there's some things that have to be a given right. One is we're a market leader in that business.
When you think about wireline and wireless we are a market leader in both of those segments.
I think thats Super important and I think that positions us incredibly well for what's going to be a very very active market. So.
I say with high conviction, it's going to be it's going to be in steps I think we're going to have solid double digit growth in communications over a long period of time and there's going to be periods of time, where we'll have step of growth right, where we'll see significant jumps in a particular quarter then followed by.
Long term double digit growth and that's that's my expectation over the course of the next three to five years.
Very helpful. Okay. So maybe kind of a question in oil and gas you know just I think we all kind of like in perspective. Here. Obviously, you know you can have more large project work in 21, that's down from 20, if I look at your second over the last few quarters. It averaged 400.
That would be sort of.
While the midsize type work and then you sort of add on large project can you talk to your customers now are we sort of bouncing along the bottom. If you made for ups inquiries and then we can improve as we go out into 21 22, you know perspective would be helpful. Sure.
Sure. So I do think that the levels in Q3 is a sustainable level for US you know considering the backdrop that exists in oil and gas that you know this.
This is challenging for us and it's challenging for me personally because you.
I believe in our oil and gas business I believe in the long term I believe that it's going to be that it's going to recover and be a significant contributor to mostek for a long period of time with that said you know I understand where the market is right I understand that I'm not going to convince the market of it we'll see it's going to play out one way or the other it's going to play out. So what are we trying to do as a business. We're trying to tell the market look lets us.
Soon that oil and gas is going to be in a down market, let's assume that it's going to continue to be roughly in the space that it that it is today, we all know that at some point demand is going to recover and there's going to be some improvement in the business, but let's just assume that that stays in a week and price point better than it is today, but in a weakness price point.
We think levels are sustainable and what we're trying to do what weve really been working on you know on this call and I think over the course of the last few months is to try to give people a view of what mostek would look like in a continued depressed oil and gas market right and I think weve laid that out.
If if if I'm right and the oil and gas market turns out to be better than considered it an option value right. I think we're still a great brand in that industry. I think we're well known I think we're going to if the business gets better we're going to be a big beneficiary of that business, but you know we're trying to give the view of what the business looks like in a depressed environment and even in that view, it's a great view.
Right. We still think we can be a 10 plus billion dollar revenue company. We think we can achieve double digit margins. If you look at where we are today right even with our guidance of 800 811 million of EBITDA were trading.
5.8 times trailing EBITDA.
Peers are trading at nine or greater right. If you. If you if you take that into account right. That's an $80 plus stock price from Austin therein lies the opportunity for the mostek investor right irrespective of how you feel about oil and gas good or bad if oil and gas earns tens of being better that story, just that story in that price point and that potential valuation increase just further.
The increases, but even if it doesn't right I still think we are dramatically undervalued relative to the rest of our business and I think overtime as we execute and as we prove out our model.
We will get there.
Very helpful. Thank you.
Thank you Andy.
Our next question today comes from Nicole built my apparently Noelle dilts of Stifel.
Hi, gentlemen, good morning.
No.
So my first question is a little bit specific but just you know given that you see energy announcement around Keystone XL and congrats on that award just curious how you're kind of thinking about the probability of that top moving forward. Given you know again more regulatory challenges and so on.
We should expect to see that go into backlog.
Corridor.
So look I think when we talk about oil and gas for 2021, we're going to be up next year I. Just just based on the projects in our current backlog of which that project is not in current backlog our.
Our business will be up I mean, I I find it very difficult to see how our business wouldn't increase on a year over year basis.
We you know I think there's time to tell as to whether you know Keystone loose board or not.
We're obviously excited about our participation in the project.
Hi, I am more bullish than than some relative to the budget I think they've done a lot to get to the point, where they are going to build it we don't know for sure you know.
The reality is that if everything that weve got pending and coming if it all happens in 2021. The reality is we'd be more like a $3 billion oil and gas business in 21, and we're never going to guide to that whenever going to think about that you know, we think theres going to be.
You know, we're assuming that a bunch of work is going to slip into 2022.
But with any individual project you could almost take any individual project out of what we're thinking for 21, and we're still going to grow based on 2020 levels.
Okay, great. So.
That and others make represents an upside on.
And then secondly, just given the strength of your cash flow generation and really where your balance sheet stands today I know you spoke a bit about.
Potential share repurchase on the call, but could you also give us a little bit more of an update a little bit more depth on how you're thinking about M&A targets in the market you know if the current environment is yielding some opportunity to pick.
Okay.
Currency, maybe struggling a little bit more on just kind of curious and also which markets you can come up and testing.
As you look forward.
Look.
I think there's a reason you haven't seen us do share buybacks in the last.
Months and a lot of it has to do with how we view the business going forward and the potential opportunities that we see out in the marketplace.
I can tell you that we are extremely very active in exploring and analyzing it.
M&A partners, probably as active as we've been in the last 10 years I can't remember, a time, where where we've been in more discussions and more negotiations and we are today.
So for those reasons I think we've.
Tried to take our time in deciding what we do with the liquidity that we're sitting on so I do think you can expect us to be more acquisitive in the coming quarters, and you've probably seen us be in a while we think there's a lot of really interesting and good targets, we've been talking about it a couple of quarters.
Obviously these deals take time, and we want to make sure we make good decisions around them, we continue to evaluate share repurchases because again talk.
Talked about are we think our valuation where were trading at as an extremely attractive.
Entry point Tomasik, but there are there are really good opportunities for us to continue to grow our business. Most of our growth has been organic over the course of the last few years. We do think there is going to we're going to we're going to be able to sprinkle in some M&A activity, that's going to help us get to these targets faster I would say that were very active in all of the segments, probably with the exception of oil and gas.
And we see really good opportunities to further our portfolio to grow our geographic footprint and that you know and grow the level the different level of services, we can offer to our customers within each of the segments.
Yep.
Thanks Anil.
Our next question comes from Alex Rygiel of B. Riley.
Thank you nice quarter gentlemen.
Thank you Alex good morning.
Good morning.
I think everybody hears you when you say that you expect sort of growth in 2021.
I suspect everybody is assuming that's on the topline and therefore I think the market is somewhat struggling with how to think about EBITDA in 2021 versus Twentytwenty can you give us a few areas to focus on to think about what the drivers are to EBITDA growth in 2000.
21 versus maybe a modest EBITDA contraction in 2021.
I look so I would say that we don't expect EBITDA to contract in 21, we expect EBITDA growth and 21 versus 20.
But there are there there's there's gives and puts and takes from that right. So I do think oil and gas EBITDA will come down on a full year basis, and 21 relative to where it was in 20 Weve talked at length about you know some of the cost plus nature of some of the larger projects and how that's a little bit dilutive to margin. So you know as we think about the business and we.
Said this for a long time, we think that you know high teens range is the right range to think about oil and gas business on a longer term nature I think that's achievable for us in 21, I think our communications margins have been really strong like the last couple of quarters. I think you know weve talked about hitting double digits for the full year and 20.
Yeah.
First quarter was a little bit down to further quarters have improved a lot I think we'll see slight improvement in 21, but we do expect to have to start ramping up back for growth in 21. So I don't know that there's much margin expansion 21 relative to what we saw in 20 I think we'll see further margin expansion in both our transmission and clean energy businesses on a full year basis and 21 relative to we are.
Today, and we obviously have a lot of growth coming from those so I think I think all that adds up so we will see from a total company perspective, I would expect our EBITDA margins to decline in 21 versus where they are in 20 us still be strong double digits.
We're not giving guidance today, but you know I would expected.
To be slightly below where they are in 20.
With with some growth from 21 to 20.
Again, we're not ready to give guidance, but I think that's a pretty darn specific view of what our expectations are as of today.
It sounds like you've been shopping around for a number of acquisitions.
The process is taking some time here.
What do you think some of those hurdles are or our seller is unwilling to sell at lower price points, they're a lot of competition for acquisitions sort of what's the hold up.
So a couple of things I think we we have a a track record of being very successful in the acquisitions that we've made.
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I think the reason that we have is because we take our time upfront right. We we understand that.
For a deal to make sense for us we have to bring some to the table right. We have to have a plan on how we take that company from where it currently is.
To where it can get to and I think that the planning process on the front end is what ultimately makes acquisition successful or not.
So for that I think we've always taken longer than than probably others have it is a competitive market. There's a lot of money out there. There are some companies that are obviously you know shopping for the highest multiple and those are the companies that you know.
Were you know for lots of reasons, we're not going to be engaged in and we're not going to you know, we're not going to see those transactions.
You know, it's tough for us trading at 5.7 times I I think there's very few companies that that are willing to sell at those kind of multiples. Although there are some right and I think we have to sell our vision and now we think we can help operators grow their business and take a potential and you make the potential of the business that they see in front of them. That's what that's what's been successful for us.
In the past.
I think we're getting close I think again you know we're we're.
I don't think its a function of of doing anything wrong or are taking too long I think this is just the customary time that we would take.
To make sure that the acquisitions that we make are going to work for us long term.
Very helpful. Thank you.
Hi, Alex.
Our next question comes from Jamie Cook of Credit Suisse.
Hi, good morning, and nice quarter on quarter.
My questions have been asked that's they're like benefit that strategically with the company.
Dennis and Greg platforms, Arlington living on the margin profile I guess in that bag as I think about sort of unlocking shareholder value I think people are placing.
The higher valuations that are important.
Hi, there. So there have been that name is there any sort of strategic initiative in Atlanta and gas that's come back.
I'm like strategically temper the growth of that business and people identify you know put higher valuations on you know whether its communication their transmission or clean energy and infrastructure is another way to learn and improve your multiple or is it more story as you know, let the market figure out that you know oil and gas.
You're gonna cyclicals that as your ability to manage.
Oil and gas downturn on it.
It is better than the market come back thanks.
So Jamie well my experience has taught me over over the years is don't overreact to the market.
And I think thats important right with with that said right.
We're trying to manage our business and understand our business over a very long period of time.
We understand the concerns that exist with oil and gas we understand the potential pitfalls and challenges that are going to be there potentially long term right. So I think for us. The first phase is to get people comfortable with the nature of our oil and gas business and the recurring.
The recurring component of it.
And.
And the diversity and strength within right. So if we can convince people overtime through execution that we can maintain a certain level of revenue in that business irrespective of what's happening in the cycle, we will get a high valuation for that portion of the business right. If it's sustainable people will pay more for it right away and we got that so there is a good core.
None of that business that falls into that category. We you know I think in the middle of a pandemic and in the middle of.
Demand issues relative to that industry. It may not be as clear, but I think over time that will prove out of it.
Again, we've got a good brand a good name in that business I do think it's going to come back.
I think we will evaluate all of our options over a long period of time, we're not going to we're not going to react we're not going to we're going to take our time and be measured around or approach ultimately, we want to increase shareholder value and as much as we can offer.
Today right its been a important part of our business. It's been a good margin business. Its been a business that we've been able to grow and react to and meet the cycles and meet the challenges within that business very well you know I also think there's going to be dramatically less competition in the next couple of years in that business, which is going to create further opportunities for companies like ours. So we're watching it we.
I understand the concerns that exists with it we want people to understand the portions of the business that we think should be valued within that business. There's portions of it that should be valued at different in different ways in overtime were going to continue to articulate that but look I. You know we've we've seen the story play too often right and we know there's macro issues related here, but we can't overreact cycle.
And I think it's early so you know time will tell what we ultimately do that.
I appreciate the color great job. Thanks.
Thanks, Jamie.
The next question today comes from Andrew It's how hammer of Thompson Davis.
Hi, good morning, guys nice quarter.
Adam.
I wanted to talk more about diversifying LNG. So the low end of your long term oil and gas goal of kind of 1.5 billion how much of that would be yes.
Recurring or integrity or maintenance work.
Well I think the.
So I think there's different parts of recurring right I would think that when we think about you know what specific the basin work versus you know you've got a significant portion of distribution on that I think we see that as like a 50 50 mix right, where 50% is more distribution related projects integrity related projects pipe.
Line line replacement projects and then the balance would be.
Based in related work, you know, where we're going to see it happen in the market is it's just going to be different basins right. We may see a slowdown in Texas, but we're going to see significant activity in other basins. So we've got to be ready and I think our business model is well equipped for it you know to react to the opportunities as they pop up in different basins that coupled with more of a distribution type model I think is what.
We won't make it will make our oil and gas business very successful over a long period of time, you know were sprinkled in some larger project activity over time.
Okay, and then I wanted to ask about Comcast just because the growth is.
So strong there is that.
Is that a pandemic response from them or is that a larger program and then as a part of that and I was hoping you could talk about the cable opportunity in general you're talking to other cable companies about potential programs as well.
Yeah, I think for us as it relates to Mostek is geographic so today, we're just working on a lot more markets for them than we historically have.
So I think it's been our ability to grow with that customer into new areas. So I don't think it's not pandemic related I think.
It's it's really you know we we were you know we signed a tier one contract with them a couple of years ago. Weve, you know theres been a initiative, where we've been trying to grow our business with them.
And I think they viewed us as a good partner to to help grow so based on that I think is the growth that you're seeing and hopefully we're going to continue maybe not at these levels for these levels are really high but I think we're going to continue to.
To grow our business with them that strong double digits for the foreseeable future.
Thanks.
Our next question comes from Andrew Wittmann of Baird.
Great. Thanks for taking my question guys always kind of bigger picture questions asked and answered but did want to give you just to clarify something that I found a little bit confusing here.
You mentioned in the oil and gas segment that to the large projects.
Startup and now they're starting there they're kind of going right now. She also mentioned that the range here in the fourth quarter contemplates further delays. So what's this I'm, hoping you could reconcile it sounds like it's moving but then there's the potential for delay a little bit confusing, but to give you a chance to clarify that.
Yes, So look I think when you think about those two projects over you know over their life.
At peak activity levels will be somewhere between five to 6000 people on those projects. We're currently at about 1500 people on those projects, we're going to grow that number from year to year end. We may grow to 5000, we may grow to 4000, right. It's going to all be dependent on how quick we grow those re.
Sources, how quick quick we put people on the right away for.
For the most part you know there's a lot of work available to us to work there are still some things missing that we need to have full access to the entirety of those projects. That's not a typical I think it's really important to note that on one of those projects.
You know one of the customers self imposed a stop work order. It wasn't a stop work order that was mandated it was self imposed as they got they always have the ability to work in certain areas, but they shut the whole project down to try to get as much progress on the full project is that good which is probably intelligent right. So now they've lifted that self imposed stop work order those.
Significant amount of work to do you know I think that if we could year up in man. The full jobs, you know, we'd probably get to the higher end of that range.
I think we're all you know cognizant of what's been happening in these jobs for a long period of time, so both us and our customers.
Trying to take it one step at a time. So that's that's the difference in our range right, where as you know were at roughly 30% of the people that we need on the project today that number is going to grow substantially between now and year end to what level. It ultimately gross two is going to be kind of what dictates, where we end up in that revenue range.
Makes sense. Thank you that's all for me.
Yes.
Our final question today comes from Sean Eastman of Keybanc capital markets.
Hi, guys. Thanks for taking my questions nation or more.
Good morning, what makes this.
To 10 billion in revenue this is super interesting obviously.
I just wanted to get a sense you know relative to where we are today 2020, you know what the margin profile on that business looks like in that 10 billion in revenue scenario just given.
Oil and gas is the highest margin segment today, but you also have some pretty.
Vicious margin expansion targets in the non oil and gas revenue streams. So just trying to put that together in my head and trying to understand that the EBITDA power in that scenario.
Yeah, I don't think it's changed over what we've said that you no longer term. If you if you break it in buckets right, we said our oil and gas business over a long term. We think we can sustain mid mid to high teens.
Our communications business. We've said, we expect to be 13, plus overtime right. We had 13 you know a lot of doing a lifecycle. We think we can exceed it in this cycle, we've talked about clean energy being a double digits, we talked about transmission being a double digits. So when you all that all that up and you looked at a $10 billion plus company. We're comfortable we can hit a double digit EBITDA margin rate at those.
Levels right, maybe it's not that's not the 12, though are at today, but it's somewhere between 10 and that and I think that at those numbers Mastrich's a very compelling story.
That's super helpful. And then second one for me.
Just a comment around being uniquely positioned in clean energy you know Claire at the important driver of that growth algorithm. So I just wanted to get a little bit more color missed on the differentiation there competitive positioning.
You know just expanding on that unique position comp that would be great.
Look I think when you look at the customer base that we enjoy in that business.
Right and the customers that we've grown with over the last three years so again.
You know I think the historical context is important 300 million to a billion five and just you know three or four years grow into 2 billion next year, which means you know when when you talk about the target that we laid out its further 50% further growth over over a number of years past that and I think it comes from.
Quite frankly, the growth of spend within the customer base that we already have so you look at our you know you've got you look at our top 10 list and we have a lot of those players in it today, but those customers have significant increases in their clean energy spend right. You know much stronger very very strong double digit rates that they're expecting to grow out overtime. If we just.
Grew at the levels of which our customer standby, we achieved that target when you add into the fact that we keep increasing the types of work that we do related to clean energy. It furthers our ability to grow that market. In addition to what the spend dollars are right. So you've got a growing market with substantial dollars being thrown at.
But you've got a contracting community that in reality doesn't exist because these type of projects haven't been built in the past. So we come in with a huge advantage in that we have been an early adopter of these businesses for such a long period of time, we're extremely well known to the customer base that spending the dollars were trusted by that customer base. So as.
They spend dollars, we will benefit so again, if we just grow at the level of which those customers are increasing their spend we think we achieved that target as we add further services to what we're going to offer overtime, we exceed that target.
Gotcha really helpful. Thanks, again for the time.
All right. Thanks, Sean.
I would now like turn the call back to Mr. mass for any additional or closing remarks.
Again, and this concludes our third quarter 2020 call once again I'd like to thank all those who have supported us during the year and for your participation today, we look forward to providing another update on our year end call. We ask everyone to stay safe. Thank you for joining us today.
Ladies and gentlemen that concludes today's conference call. Thank you for your participation you may now disconnect.
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