Q1 2021 MasTec Inc Earnings Call
Please standby.
Welcome to mouth Teck's first quarter 2021 earnings conference call. Initially broadcast on Friday May 7th 2021, Let me remind participants that today's call is being recorded at this time I'd like to turn the call over to Marc Lewis Mastec, Vice President of Investor Relations.
Mark.
Thanks, Laura good morning, everyone and welcome to Mas X first quarter call.
The following statement is made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of 1995.
Communications, we may make certain statements that are forward looking statements regarding mas at future results plans and anticipated crash in the industries, where we operate these forward looking statements for the company's expectations on the day of initial broadcast of this conference call and the call.
He has not undertaken.
Patients based on such kind of asked for knowledge various uncertainties risks and assumptions are detailed on our press releases and filings with the SEC.
Should one or more of these risks or uncertainties materialize for any of our underlying assumptions prove incorrect actual results may differ significantly from results expressed for applaud anything on occasion.
In today's remarks by management, we will be discussing adjusted financial metrics are reconciled in yesterday's press release on supporting schedules.
We may use certain non-GAAP financial measures on this conference call a reconciliation of the non-GAAP financial measures not reconciled on these comments for the most comparable GAAP measure can be found in our earnings press release, our 10-Q, our policy on the Powerpoint presentation located in investors section of our website at Mastec Dot com.
Today, we have Jose Mas, our CEO and George Pita, our executive Vice President and CFO. The format of the call will be opening remarks analysis by Jose followed by financial review for George These discussions will be followed by Q&A for and we expect a call to last about 60 minutes.
Other being raised for have a lot of important thanks for talking about today, So I'll now turn it over to Jose.
Thanks Mark.
Good morning, and welcome to March six 2021 first quarter call.
Today I'll be reviewing our first quarter results as well as providing my outlook for the markets we serve.
I'd like to thank you for joining us today, and I hope and pray that you on your loved ones are healthy and safe.
I'd like to start today by highlighting how proud I am on the men and women of Boston.
Their sacrifices resilience creativity and commitment during this pandemic have been inspiring.
Millions of families throughout the U S relied on the power Communications Entertainment and other services, we help our customers provide.
Our team has again safely delivered and I'd like to thank the men and women of Mastec for their sacrifices and their hard work.
For getting the quarterly results. This week, we announced the acquisition of interest.
Entrant is one of the largest private electrical utility contractors in the United States.
We believe the changes in electrical distribution needs led by grid, Modernizations and hardening coupled with the transition towards increased electrical vehicle usage will have an enormous impact on the last mile distribution of electricity.
With over 2000 team members entrant significantly expands our electric distribution and transmission capabilities and footprint.
With a strong presence in both the Midwest and the West coast areas traditionally underserved by Mostek. This combination will enhance entrance capabilities as it continues to expand and allows mas to sell its full suite of services, including renewable power generation substation construction and gas.
Distribution to a relatively new customer base.
With trailing 12 month revenues of approximately $550 million and strong opportunities for future growth. We are very excited about our future opportunities.
The purchase price of approximately $420 million represents a purchase price multiple of roughly seven times without taking into account tax benefits, but on a net present value basis represent over a full multiple turn.
We believe based on their prospects the potential synergies and the cross sell opportunities that while it's on the higher end of historical multiples for Mastec.
<unk> got very good value.
On a year on called we announced two other acquisitions that closed during the first quarter in.
In addition to enter Inc.
We've acquired two other companies during the second quarter.
First Phoenix industrial is a heavy industrial contractors that enhances our concrete piping and electrical capabilities with a strong west coast presence.
And the other is a buyer's engineering one of the largest outside plant telecommunications engineering firms in the country.
With approximately 900 employees across 31 states.
Buyers brings new capabilities domestic debt, we've typically outsource.
With significant investments in fiber construction supported by both private and public investments, including the rural digital opportunity Fund Smart city funds. The five Jeep on for Rural America and potential further telecom infrastructure spend we expect engineering services to be a critical path for <unk>.
Success.
Being able to control schedule and resources will not only allow us to enjoy the engineering growth opportunities, but it will also allow us to bundle construction services, along with engineering and hopefully significantly expand our market share.
On behalf of our team members board of directors and shareholders I'd like to welcome all of these new team members to the Monster family.
Now some first quarter highlights.
Revenue for the quarter was $1 billion $775 million.
Adjusted EBITDA was $204 million.
Adjusted earnings per share was $1 10.
Cash flow from operations was $257 million and backlog at quarter end was $7 9 billion.
In summary, we had another excellent quarter and are on track for another great year.
Over the last few quarters, we've talked about our strategic long term goals and our future business mix.
<unk> the pandemic challenges on the oil and gas industries, we laid out a path to achieving an annual revenue target of $10 billion with double digit margins.
One of our key highlights of 2020 was our ability to grow non oil and gas revenues and EBITDA on.
Our guidance that we provided today, including our most recent acquisition reflects continued diversification as we expect our non oil and gas business to grow approximately 27% in revenues and over 40% and EBITDA in 2021.
With significant acceleration in the second half of 2021.
We are encouraged by the size and scale of the growth opportunities in front of us now.
Now I'd like to cover some industry specifics.
Our communication revenue for the quarter was $568 million and margins improved 70 basis points year over year.
Highlights for the quarter include our growth with T mobile, whose revenues increased four fold over last year's first quarter and for the first time broke into our top 10 customer list.
Cash revenues were also very strong in the quarter, increasing 61% from last year's first quarter.
That growth was offset with the expected declines in both our Verizon and AT&T business, which were both down approximately 35%.
Both AT&T and Verizon we're vocal about the importance of the <unk> spectrum auctions in their business. We expect revenues for these two customers, especially AT&T to accelerate in the second half of the year with significant growth opportunities heading into 2022.
We're also very excited with recent developments around the planned increased investments in the telecommunications wireline networks.
The rural digital opportunity fund or our Das which is a follow up to the connect America fund will provide $20 billion of funding over the next 10 years to build and connect gigabit broadband speeds and underserved rural areas.
Additionally in October of 2020, the FCC established for <unk> run funds for Rural America.
Which will provide up to an additional $9 billion in pricing over the next decade to bring five G wireless broadband connectivity to rural America.
In addition, the early drafts for the infrastructure Bill included additional direct investments in enhancing telecommunications networks, including <unk>.
I believe we are entering one of the most exciting periods in the history of telecommunications and that the deployment of <unk> wireless technologies and the associated networks is truly a game changer for the consumer our customers and for Mastec.
Moving to our electrical transmission segment revenue was $134 million versus $128 million in last year's first quarter.
We have now begun one of the larger projects. We had previously had been previously awarded and expect a much better margin profile for the balance of 2021.
We also expect backlog to improve as we have been awarded new MSA agreements and are in late stages of negotiations on a number of larger projects. We believe we are 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 oil and gas pipeline segment revenue was $726 million, we had a strong start to the year as we were working on projects that had been delayed in 2020 <unk>.
Based on our current backlog levels, we expect a strong 2021 and our guidance assumes some project activity will be pushed into 2022 because of regulatory delays.
Last year, we forecasted a longer term recurring revenue target of one $5 billion to $2 billion a year, assuming a continued depressed oil and gas market.
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 service gas distribution in line replacement activity. We are focused on continuing to diversify our revenues in this segment.
Moving to our clean energy and infrastructure segment revenue was $350 million for the first quarter versus $286 million in the prior year, a 22% year over year increase we expect full year revenues to approximate $2 1 billion or 37% increase over 2020.
Backlog was up sequentially by nearly $360 million and more importantly, subsequent to quarter end, we have already been awarded approximately $550 million of new projects.
While backlog was already at record levels.
In Q1 in this segment, we expect backlog to continue to increase over the coming quarters.
We have made significant investments in this segment to profitably grow our business through organic opportunities. In addition to our smaller tuck in acquisitions.
We continue to add talent and resources to meet the increasing demand for our services.
We added nearly 2000 new team members in this segment from the end of the first quarter in 2020 to the end of the first quarter in 2021.
With the new administration and a clear focus on clean energy, we have seen a significant increase in planned clean energy investments from both traditional customers as well as oil and gas companies that are trying to improve their carbon footprint.
As a leading clean energy contractor and partner Mastec is uniquely positioned to benefit from these investments.
I would like to highlight the diversification within our clean energy and infrastructure segments.
While we got our start and when today, we are capable of meeting any of our customers demands.
We are actively working on base load gas generation projects renewable biofuel projects and are seeing significant demand as we continue to quickly expand our solar capabilities and footprint.
To recap we had an excellent first quarter and are very excited about the opportunities in the markets we serve.
We are encouraged with the recent developments related to an infrastructure bill.
With a significant presence in the telecommunications market, which includes significant <unk> build out capabilities, coupled with our exposure to the clean energy market, including wind solar biofuels hydrogen and storage and our recent expansion into heavy infrastructure, including road in heavy civil.
We feel we are uniquely positioned to benefit from this anticipated infrastructure spend.
We are confident we can hit our growth targets with solely private investments in infrastructure.
But do recognize the potential acceleration in our markets with significant government spend.
I'd like to again congratulate and thank the men and women of Mastec for their fantastic performance on <unk>.
100, and privileged to lead such a great group the men and women of Mostek are committed to the values of safety environmental stewardship integrity.
Honestly and in providing our customers a great quality project at the best value.
These traits have been recognized by our customers and it's because of our People's great work that we've been able to deliver these outstanding financial results in a challenging environment and position ourselves for continued growth and success.
I'll now turn the call over to George for our financial review George.
Thanks, Jos and good morning, everyone.
Today I'll cover our first quarter financial results and our updated annual 2021 guidance expectation inclusive of the recently announced entrant acquisition.
As Marc indicated at the beginning of the call our discussion of financial results and guidance will include non-GAAP adjusted earnings and adjusted EBITDA.
Reconciliation and details of non-GAAP measures can be found on our press release on our website or in our SEC filings.
In summary, we had strong first quarter results with record revenue for approximately $1 8 billion.
A 25% increase over last year.
Record adjusted EBITDA of approximately $204 million a.
A 73% increase over last year.
And record cash flow from operations for approximately $257 million, a 27% increase over last year.
First quarter results exceeded our expectation with revenue exceeding expectations by approximately $125 million.
Adjusted EBITDA exceeding our expectation by approximately $32 million and adjusted diluted earnings per share exceeding expectation by 30.
We expect that $70 million of revenue and $20 million on adjusted EBITDA related to our first quarter beat represents an increase to our annual 2021 view.
With the balance representing accelerated quarterly project timing within 2021.
We continued our strong cash flow performance during the first quarter, reducing our net debt levels by approximately $65 million to approximately $815 million, despite funding approximately $90 million and acquisitions during the quarter.
This equates to a book leverage ratio of less than one time and we ended the first quarter with a record level of liquidity of approximately $1 7 billion.
This balance sheet position, coupled with continued strong cash flow performance allowed us to easily fund the second quarter 2021 interest acquisition, while maintaining ample liquidity and comfortable leverage metrics.
Now I will cover some detail regarding our first quarter segment results and guidance expectations for the balance of 2021.
First quarter Communications segment performed generally in line with our expectation, which incorporated the expected impact of lower wireless services due to the timing of recent C band spectrum auctions.
As Jose already mentioned recently awarded C band Spectrum is expected to begin deployment in the latter part of 2021 and.
And is expected to drive significant revenue opportunities for multiple years.
First quarter Communications segment, adjusted EBITDA margin rate was eight 6% of revenue a 70 basis point improvement compared to the same period last year.
Our annual 2021 Communications segment expectation is that revenue will approximate $2 7 million to $2 8 billion.
With annual 2021, adjusted EBITDA margin rate, improving 90 to 110 basis points over 2020 levels.
This includes the expectation that both revenue and adjusted EBITDA margin rate improvement will accelerate during the second half of 2021 as C band spectrum deployment initiate.
First quarter of clean energy and infrastructure segment for clean energy performed generally as expected during a seasonally slow quarterly revenue period.
Clean energy segment revenue was $350 million and adjusted EBITDA was approximately $11 million for three 1% for revenue.
Looking forward towards the balance of 2021, we expect continuation of a very active bidding market in both the clean energy and infrastructure markets.
We continue to expect annual 2021 clean energy segment revenue will grow in the high 30% range and approach $2 $1 billion with annual 2021, adjusted EBITDA margin rate improvement in the 70 to 110 basis point improvement over the prior year.
First quarter oil and gas segment revenue exceeded our expectation with revenue at $726 million.
And adjusted EBITDA at $168 million.
As expected we initiated activity on selective large projects during the quarter and we exceeded our estimated production.
As I previously mentioned a portion of this first quarter beat represents an expected improvement to annual 2021 results. While on other portion represents an acceleration of expected project activity within the year.
We currently expect annual 2021 oil and gas segment revenue will range between $2 for the $2 5 billion.
With the continued expectation that annual 2021, adjusted EBITDA margin rate for this segment will be in the high teens range.
This expectation includes the assumption that selected large project activity over the last half of 2021 will move into 2022 due to permitting approval delays and thus second half 2021 oil and gas segment revenue is expected to approximate second half 2020 levels.
With a greater level of project activity expected during the third quarter and a lesser level during the fourth quarter due to the expected timing of project winter breakup activity.
First quarter electrical transmission segment generally performed as expected with revenue at $134 million and adjusted EBITDA margin rate at two 7%, reflecting a seasonally slow quarterly revenue period.
With the continued impact of project inefficiencies discussed last quarter as we move towards project completion.
Looking forward to the balance of 2021, including the expected partial year operations of the <unk> acquisition, we expect annual 2021 revenue for the electrical transmission segment to approximate $950 million in annual 2021, adjusted EBITDA margin rate to approximate seven 5% on.
Revenue.
This guidance includes approximately $330 million of revenue at a double digit adjusted EBITDA margin rate for the recent acquisition of entrant, which became effective in May 2021.
Now I will discuss a summary of our top 10 largest customers for the first quarter period as a percentage of revenue.
Enbridge revenue was approximately 25% comprised of Canadian station and other project activity as well as a large project initiated during the first quarter that will resume in the latter part of the second quarter Once road for Ross bans are lifted.
AT&T revenue derived from wireless and wireline fiber services was approximately 8% and install to the home services was approximately 3%.
On a combined basis. These three separate service offerings totaled approximately 11% of our total revenue.
As previously.
We indicated this revenue level includes lower wireless services revenue due to the temporary impact on the C band spectrum auction.
Also as a reminder is important to note that these offerings, while falling under one AT&T corporate umbrella are managed and budgeted independently within that organization, giving us diversification within that corporate universe.
Nextera energy was 7%.
Water midstream was 6%.
Comcast was 5%.
Horizon energy transfer were each at 3%.
Duke Energy T mobile and pattern energy were each at 2% of revenue.
Individual construction projects comprised 72% of our first quarter revenue with Master service agreements comprising 28%.
With the combination of expected resurgence and wireless MSA work, coupled with the entrant acquisition, whose revenue was virtually all MSA driven.
Future MSA revenue is expected to increase as a percentage of our total revenue highlighting an increased level of mastec revenue expected to be derived on a recurring basis.
At March 31, 2021, our backlog was approximately $7 9 billion.
Essentially flat to $7 9 billion as of year end 2020.
For the sake of clarity reported first quarter Blackhawk does not include any amounts for the recently announced entrant acquisition.
Lastly, as we've indicated for years backlog can be lumpy as large projects burn off each quarter and new large contract awards only come into backlog at a single point in time.
Now I will discuss our cash flow liquidity working capital usage and capital investments.
During the first quarter, we generated a record level $257 million in cash flow from operations and ended the quarter with net debt of $815 million, which equates to a book leverage ratio of 0.9 times adjusted EBITDA.
We ended the first quarter with Dsos at 80% just below our expected DSO range in the mid to high <unk>.
We are proud of our continued strong cash flow from operations and believe this performance highlights the strength resiliency and consistency of Mas tax cash flow profile.
We ended the first quarter with $512 million in cash on hand, as well as record liquidity defined as cash plus borrowing availability of approximately $1 7 billion.
During the first quarter, we reduced our net debt by $64 million, despite approximately $90 million and first quarter acquisition funding.
During the second quarter of 2021, given the working capital associated with an expected $320 million increase in sequential quarterly revenue couple.
Coupled with the cash outflow for the interest acquisition, we expect that our leverage will temporarily increased during the quarter, while still maintaining substantial liquidity of approximately $1 billion and comfortable leverage metrics within our target range.
As we look forward past the second quarter for the balance of 2021, we.
We expect continued strong cash flow generation, despite the working capital associated with our planned 2021 revenue growth with.
With net debt at year end expected to reduce from second quarter levels and approximate $1 $1 billion.
Leaving us with ample liquidity and an expect booked expected book leverage ratio slightly over one times adjusted EBITDA.
In summary, our long term capital structure is extremely solid with low interest rates no significant near term maturities and ample liquidity.
This combination gives us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value.
We are pleased to significantly increase our annual 2021 guidance.
We now project annual 2021 revenue of $8 2 billion with adjusted EBITDA of $930 million or 11, 3% of revenue.
And adjusted diluted earnings of $5 40 per share.
This represents a $400 million increase in revenue guidance, a $55 million increase in adjusted EBITDA.
On a $40 40, <unk> increase in adjusted diluted earnings per share.
Comprised of the combination of our strong first quarter performance and the benefit of the interest acquisition.
As we have previously provided some color as to our annual 2021 segment expectations I will briefly cover other guidance expectations.
We anticipate lower levels of net cash capex spending in 2021 at approximately $100 million.
With an additional $180 million to $200 million to be incurred under finance leases and this expectation is inclusive of expected capital additions for first and second quarter acquisitions.
As we have previously indicated as our end market operations shift with non oil and gas segments, becoming a larger portion of our overall revenue our capital spending profile should reduce as the oil and gas segment has historically required the largest level of capital investment.
We continue to expect annual 2021 interest expense levels to approximate $58 million with this level, including over $500 million.
And first and second quarter 2021 M&A activity.
We expect to maintain a strong cash flow profile with annual 2021 free cash flow once again exceeding adjusted net income.
The working capital requirements related to our projected $1 $9 billion increase in annual 2021 revenue.
For modeling purposes, our estimate for 2021 share count continues at 74 million shares.
We expect annual 2021 depreciation expense to approximate for 1% of revenue inclusive of first and second quarter M&A activity.
As we have previously indicated this expectation include incorporates an increased level of 2021 oil and gas segment depreciation expense when compared to 2020 as we are utilizing conservative depreciation lives and salvage values on previous capital additions to protect against potential market uncertainties.
Given these trends we anticipate that next year annual 2022 depreciation expense as a percentage of revenue will decrease when compared to 2021 levels, an approximate three 5% of revenue.
We expect annual 2021 corporate segment adjusted EBITDA to be a net cost of approximately 1% of overall revenue.
Lastly, we expect that annual 2021, adjusted income tax rate will approximate 25%.
Our second quarter revenue expectation is $2 1 billion with adjusted EBITDA of $229 million or 10, 9% of revenue.
And earnings guidance at $1 25 per adjusted diluted share.
In terms of some additional color on the expected timing of second half 2021 revenue performance, we expect third quarter consolidated revenue growth in the mid to high 30% range over the prior year with third quarter 2021, consolidated adjusted EBITDA margin rate approximating 12% of revenue.
That concludes our remarks now I will turn the call back to the operator for questions and answers operator.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off July youre sitting on to reach our equipment. Please limit yourself to one question plus one follow up then re queue for additional questions again that is star would ask a question.
And we'll take our first question from Alex Rygiel with B Riley.
Thank you good morning, and fantastic quarter gentlemen, Thank you Alex good morning.
Jose the cash flow was strong the balance sheet contingent debt plus the capacity on it can you talk a little bit more about your M&A pipeline.
Which segments in your business year on focus on there.
And look we talked about it going into last year as.
As the year progressed, we're really excited about what we were seeing on the M&A front.
For lots of reasons last year got complicated with COVID-19 I think youre seeing on number of deals kind of clear early in 2021 based on the activity we had in 'twenty pipeline has.
It is incredibly strong there are a number of very active targets that we're in the middle of negotiations with so very excited about what's happening we kind of laid out the most important segments for us at the end of 'twenty right, So and that Hasnt really changed so we're really focused on everything that's clean energy related everything that's electric grid related.
And then to a lesser extent telecom because we think we've got a great presence.
And followed by infrastructure. So those are kind of a for areas that were really focused on.
Great opportunities out there I think that one other things that we're really focused on is how do we meet all of our customers' demand and the growth that's coming and how do we best position ourselves to execute on that that's what we've been hyper focused on a lot of that will be organic but there will definitely be some acquisition opportunities to make sure we're ready for what's coming.
And to follow up growth in clean energy has been real strong can you talk about some other larger projects I know you mentioned a few kind of earlier in your prepared remarks, but can you give a little bit deeper into that segment on exactly sort of what you're working on there and talk a little bit more about the prospects.
Sure. So a couple of areas right. So first when you think about the traditional renewable type projects that we've done whether it's wind or solar those projects are getting a lot bigger.
Our customers are building larger farms, which are a lot more expensive require more people more assets on the projects the growth in solar that we're seeing is spectacular and I think it's going to last for a long time the plans out two to three years out are pretty phenomenal. So.
The truth is that we're in a we're in a period of significant ramp right. We're hiring a lot of people, we're bringing a lot of people on board, we're really investing in the business to take advantage of what we think is going to be a very very strong multi year opportunity. It's costing us money to day to do it is costing us margins today to do it what you see in our clean energy business from a revenue perspective as <unk>.
Nowhere near where we ultimately think we can achieve.
And that's why we're making these investments I think we'll see the margins of the business really begin to improve in the second half we have significant ramp in that business throughout the year. So our second quarter, we're probably going to be 50% bigger than our first quarter from a revenue perspective, our second half of the year is probably going to be 40% bigger than our first half of the year. So we're just we're on we're going through <unk>.
<unk> growth in that business today.
The opportunities are fantastic and we're going to continue to invest for to take advantage of project size is getting bigger.
I think it's very manageable and and again I think customers are looking for key partners that they can trust and I think we are definitely one of them.
That's great good luck.
Thank you Alex.
Our next question comes from Steven Fisher with UBS.
Great. Thanks, good morning.
Just wanted to good morning, just wanted to follow up on that clean energy discussion and it.
So it's great to see the.
The robust prospects now finally, starting to convert I guess I'm curious how you'd characterize the risk on these projects.
How do you determine it seems like Theres a lot of different prospects out there how do you determine on a good project for one that carries too much risk.
So I think one of the strength of Mastec for a long time had been in managing risk on projects I think that's really set us apart.
If you look at our performance over the course of the last five years for sure. We've done a great job on mitigating risk of understanding contract structures have really putting ourselves in a position to succeed and I think you've seen that based on.
I think the strength of our earnings and our ability to forecast our business over a long period of time, which I think we've been exceptionally good at.
One of the strength in our business quite frankly is the customer base. If you look at the Blue chip customers that we're working for today were working for some of the biggest utilities in the country, we're supporting them in their generation endeavors right of all kinds, which I think is just a growing market, that's changing and it's very different than it's ever been.
So I think based on.
The sophistication of our customers and based on our ability to mitigate risk I think we're in great shape, we are not chasing.
<unk>.
New developers were not chase on projects that need funding, we're working with blue chip customers that have been doing this for a long time that understand the business that won us as their partner to be successful and I think.
I think it's a perfect match.
Great and then just on the telecom side, what is that AT&T in particular in the Verizon acceleration in the second half dependent upon it and it sounds like C band.
Is really the driver, but what then is that dependent on how are they thinking about those decisions there on spending and how confident can we be that this doesn't push out further into 2022.
Okay.
We're highly confident right I think.
If you see what's happened right those two customers in particular have talked a lot about the spectrum auctions at the end of the year, we saw a significant decline in their business because of it right. They definitely shifted strategy weighted for those auctions to complete they have now completed everybody knows what theyre going to build everybody's now in the front end process of that.
So we're talking.
We're in the midst of engineering, and obviously site prep and site Act for a lot of that work. We know that work is coming we know the plans we see the acceleration of the business when it should hit so I think that.
I think that.
Quite frankly the.
There's not much left I think there is certainty on it I think the ramp plans are coming it's definitely going to be a lot bigger in 'twenty. Two then it will be in 'twenty. One I think we'll start seeing the acceleration of that business in the second half of this year.
We have really nice growth second half the first half in our comms business right, we're going to be will grow at north of 20% second half versus first half, which will be the beginning of the ramp and I think the.
I think we're going to go into 2022 with incredible momentum in that business.
Great and congrats on interest.
Steve.
Our next question comes from Brent Thielman with D. A Davidson.
Hey, Thank you congrats as well on.
Yes.
Does the entrant come with its own pipeline of potential deals that they might have been cultivating prior to the sale on that you might look to pursue over the near term.
It does we havent done a lot of work around that yet there's definitely.
A pretty solid pipeline that they brought to the table that <unk> been talking to so we'll start we'll start that process here on the next few weeks as we started getting them under our belt.
We have our own pipeline right. So we're incredibly busy right now so our job is to kind of sift through the best opportunities and really try to do the things that make the most sense for us, but it's a good question and yes. They do.
Yes.
Yes.
And then for oil and gas and yet you had some tough year on year compares on bookings, but I'd still say pretty healthy this quarter.
With some of the spillover of the large project work.
Into 2022 that Youre alluding to you on the guidance, but the opportunity set in front of you.
Do you think 20 to revenue in that segment can can look similar to what you expect this year.
Well, we're going to have a great 21, right. So George in his prepared remarks talked about two four to two five its going to be front end loaded. So if you look at the second half of the year on oil and gas is going to be roughly 1 billion 1 billion one very similar to what it was last year.
I think when you take into account our guidance and you make those assumptions around oil and gas it really shows the strength of our non on our non oil and gas business in the second half of 2021 with that said I think that we're not really changing the longer term outlook that we've put out we've talked about being at $1 5 million to $2 billion and our oil and gas business, even if you pick the midpoint of that for 'twenty.
Two.
At $1 750.
That's how we're modeling our own business will come back to that on a second but even and really everything we've done over the last year is really trying to prepare ourselves in case that happens right in case. This this oil and gas market.
Deteriorates to those levels.
Even at that level, we think we can achieve a $9 billion revenue target for approximately a 9 billion revenue target for 2022.
Roughly the midpoint of our range now with that said.
When you look at the earnings results of a lot of our oil and gas customers over the course for the last couple of days I mean, the earnings have been phenomenal I think theyre, making great strides in terms of debt repayments, which has been their stated goal.
We are talking about a lot of projects.
I had kind of been mothballed. So we're definitely seeing a lot more activity in that business than we've seen whether that hits in 'twenty, two or not we don't know.
Obviously, the stuff that's pushing into 'twenty two will help that business. So if anything we're probably being a little too conservative in our 'twenty two thoughts around oil and gas, but again our story I think domestic story, what we've really been.
Telling the street is our non oil and gas business has so much potential.
And I think that as you see our results in the second half of the year as you see what we're planning to do in 2022, I think as the oil and gas comparable got easier quite frankly.
You'll see the growth in that business to really drive the growth of the total company.
Okay. Thank you.
Thanks Brent.
Our next question comes from Andy Kaplowitz with Citigroup.
Hey, good morning, guys on.
Andy.
Jose I just wanted to follow up on in trend in the sense that maybe little more color around historical growth and margin characteristics. I guess, you gave us and then can we talk a little bit more about the synergies you expect between interest in your legacy electric transmission business. It's interesting because you talked about the complementary geographic fit but as you know it's been a little bit more difficult.
In terms of execution for your legacy electrical business. So do you think the increased scale of electrical influx of new management can help for the overall execution in that segment.
Yes, it's a great question, Andy So we've got as we think about our business wherever we obviously have our transmission piece, which is mostly a union business, which will complement entrant really well we've got a non union distribution business, which is within our communications segment, which historically been there which is a very strong business as well right. So we've got.
Really nice presence across a lot of different customers across the country. There is no doubt that entrants reputation their workforce.
Gives us a ton of potential one other things that we really like about the interim deal is their customers base need for gas infrastructure work right. So it's an area that that interim hasnt really focused on in the past scenario that we think we're really good at so again, we think it opens up a huge market for us.
For the rest of the <unk> businesses that can operate in that space. So I think theres going to be tons of cross sell opportunities even for on the power generation side for a number of their customers that or whether theyre doing renewable projects are different kind of projects. It's a whole new customer base that opens up for us that we haven't had tremendous exposure to in the past. So I think theres a lot of benefits.
On.
Obviously, a lot of intangible ones, we've only talked about the tangible ones for now they're a great company on its own they've been growing at 20%.
Over the course of the last 10 years. So it's just a really good company with a great great metrics and growth profile and we expect them to continue operating at those levels.
Very helpful. And then I got to ask you about throughout this 9 billion target for 'twenty. Two in May here would suggest good confidence in the growth, which I think we all understand.
Do a little bit of math, it looks like maybe something like high single digit organic growth. So maybe you can talk a little bit more about debt. If it's on sort of right in thinking about that and is it just because you have such good visibility on that communications ramp we already talked about clean energy and obviously the acquisitions ramping up.
Yes, I think if you.
So let me let me address your one of your points on your question right. If you. If you look at what we're saying for 'twenty, two and you start with the premise that our oil and gas business would be at the mid point. So it means it would be down $7 million to $800 million next year, and we're talking about the business being up $800 million rates of the business in totality would be up $1 7 billion in 2022.
Versus 'twenty, one with roughly five 600 of that being acquisition driven from entrant. So the balance of that would be growth. So the.
The 9% would be off I think it would be really strong double digit growth across the balance of our business and I think thats what were seeing right. So that's what we're managing to we're trying to prepare and then if you if you actually modeled that out to 'twenty three with the organic growth rates that we're having in the non oil oil and gas business with the on oil and gas business that has a pretty easy.
Comp in 'twenty three versus 22.
I think you'll begin to see what the growth profile of Mas that could become and Thats really what I mean, that's what we're managing to right. That's how we're preparing ourselves that's how we're trying to grow our resources and really prepare ourselves for the future.
Appreciate it Jose.
Thank you Andy.
Our next question comes from Noelle Dilts with Stifel.
Hi, guys and congrats again on the good quarter.
I will now Hugh.
I wanted to circle back to the engineering acquisition the virus engineering acquisition.
Can you kind of discuss engineering.
Capabilities are becoming more important to your customers in any of your key end markets.
And on.
Are there any other areas for the business.
We're looking at potentially bringing more of those engineering capabilities in house.
Sure and oil so what we're seeing and especially on the telecom market right with all of this new investment that's coming in there is new players even the even the existing players that have been in the market for a long time right. Their business is changing so you have these massive fiber builds that are going to happen all over the country by a lot of different players some incumbent some new.
With an engineering subset of people and resources that Hasnt really changed in a long time. So there's no question that even even when the on the last couple of years. When we saw those heavy fiber builds one on one of the big issues going into it was the engineering side of the business right that was hard to find qualified engineers. It was hard to get in front of the engine.
Hearing so I think that's only going to exacerbate and get much worse right. So the ability to have that on staff and more importantly, right help them manage their business and grow into it so.
We're super excited about that acquisition, it's obviously from on a dollar perspective, it wasn't that big of a deal but it comes with a lot of people right. There at 900 900 people that number has grown substantially just in the last few months are challenged with debt businesses. We've got a significantly scale, even from where it's at today right. So 'twenty one is going to be a year of significant investment in that.
I don't think that we're not going to get great returns out of that business in 'twenty, one because we're going to really focus on scaling and we're going to look at how we can focus on some of the.
Other engineering assets, we have in house on some of our India capabilities to really help them prepare their business, but the reality is the opportunities there for that business to be dramatically bigger than it is today and with the right investments. We think we're going to put ourselves in a really unique position you couple that with the market opportunity, which isn't just doing engineering services, but going.
To our customers and telling them look we can give you a full turnkey approach or you need the engineering services, but we want to bundle it with construction theres less handoffs Theres, one chose to throat, that's really resonating within the customer subset that we've been talking to so.
Again, with what's coming which is substantial and our ability to gear up and our ability to perform multiple services. I think this is going to be a fantastic deal for us.
Okay great.
Okay helpful.
And then on.
On the oil and gas business, you mentioned that there is still pretty robust demand for maintenance and replacement work.
Could you kind of give us a sense of as you look out to that one $5 billion to $2 billion in steady state revenue for that business.
How much youre thinking.
Hello, how are you thinking about the kind of more recurring or maintenance elements of that revenue.
On the optical working to growth.
Adam.
Yes look I think two thirds of it will end up being maintenance driven and a third of it will be project driven.
Again.
It's hard to know what's going to happen two years out a year and a half out I think what we're seeing in the business today is an improving environment. There is no question that the financials of these companies have improve theyre doing the sentiment today is completely different than it was nine months ago right. So.
Doesn't mean that they are building projects today no do I think they are talking about I think they're looking at their capital plans and reassessing based on the strength of their financial condition.
Absolutely they are because we see it every day right. So our hope over time is that the targets that we've put out into being really conservative, but I don't think were ready to to call that yet right.
We're comfortable with the targets, we put out were comfortable with our ability to continue to build on the maintenance side of the business that we have today.
And.
And we think that the levels that we're talking are very achievable.
Great. Thank you. Thanks.
Thanks Noel.
Our next question comes from Adam <unk> with Thompson Davis.
Hey, good morning, guys great quarter.
I wanted to start on the.
Wire line opportunity and art for what's your latest thoughts on the timing there.
Yes. Good morning, Adam look I think it's like everything else right everybody gets really excited and then we realized that there is a lot of work to do before some of this stuff actually.
Hits it into the ground.
It's really active.
We're extremely active in that business. We're in the middle of lots of different type of work with lots of different type of customers I think we're going to see construction activity in the second half of 2021 with significant ramps going into the third and fourth quarter into 'twenty. Two I think 'twenty two is going to be just an unbelievable year.
Relative to what we're seeing in the market.
Again, I think we start a lot of that work in Q3 Q4, but the reality is 'twenty two is just going to be.
We're going to be on OSM year relative to that.
Okay.
And then Andrew and obviously, a little bit more distribution focused on transmission focus can you talk about.
How that changes your transmission segment overtime the risk profile.
Well, it's mostly MSA driven recurring work right. So I think it's from a.
I don't I don't know other ones more riskier than the other I think they are both very good businesses that obviously it makes the business very consistent.
So.
It's I think it's important to participate in both I think both are going to have tremendous growth opportunities.
And I think it just it maximizes the efficiency of that business I think there will be opportunities.
Again for cross sell and also for for for career paths for our employees. So its.
It's going to really strengthen that side of the market for us. It gives us scale, which I think we've been lacking I think that's been one of the issues in our market. So between and again it was a business that we already expected and anticipated growth and so we had set out a $1 billion target in that business irrespective of acquisitions entrant makes a bigger it probably makes the.
Our ultimate goals in that business bigger as well, but I think it just allows us to grow that business at a faster at a faster pace.
Starting now right.
Perfect. Thanks. Thanks.
Thanks, Adam.
Our next question comes from Jamie Cook with Credit Suisse.
Hi, good morning, a nice quarter.
Hey, guys work day.
Obviously, the quarter was very strong and earnings have been very strong, but no comments I get from clients are still the majority of the profit share are driven by oil and gas versus the segments that people want to see.
The profit dollars from you.
Just on a relative basis or when do you think at that tipping point, where the other businesses.
It comprises a bigger part of that profitability and then my second question. Obviously that acquisition you did was a nice acquisition helps with the profitability I'm. Just wondering do you see line of sight of a couple more of the debt you can sort of tuck in that sort of accelerate the.
The margin.
Growth in the non oil and gas segments.
Yes, it's a great question, Jamie right and we know that.
We know that concern exists, it's what we've been talking about since the third quarter of last year.
I think if I, if I take a step back right out of the.
We obviously live this day to day, but I think we're in the midst of remarkable transformation at Mastec. If you would have thought that our oil and gas business was going to do with what we're projecting it to do on we'd still be able to grow our business in and produced record results I don't think anybody would believe this a year ago and I think we are in the middle of that right. It's not like.
You turn on the switch, but I think we've laid out the plan and I think we're laying out the timeline that we think is very achievable. If you look at our second half of 2021 and I think this is I think this is at the crux of the Mastec story right. When we look at our third and fourth quarter, we expect non oil and gas revenues from last year, So 'twenty one to 'twenty.
The increased 44% on from a top line perspective, and almost 75% from an EBITDA perspective, So I think youre going to see it in 'twenty one right I think I think we're on the cusp of really starting to deliver significant earnings in our non oil and gas business and enter 2022 with incredible momentum.
And that's and we believe that right we see the investments that we're making we see how our jobs are lining up we've got tremendous growth in the second half of the year versus the first half of the year in our non oil and gas businesses. So our job is to execute right. Our job is to perform on those jobs and deliver the margin profiles that we can.
We don't have any expectations of dramatically outsized margins. These are we think.
Very realistic expectations and it gets us to those growth levels and I think if we can achieve those growth levels.
<unk>.
I think the story speaks for itself and I am highly confident we will to your second question on acquisitions Luke.
Look I mean, <unk> was a big deal for US right for mode from a pure purchase price perspective.
Are there other deals of that size out there. The answer is yes. There is also a lot of other deals that arent as big right. So there's a really nice mix.
Of deal opportunities that exist out there again were trying to pick the ones that we think make the most sense for us one other things that I'm incredibly proud of if you look at the acquisitions that we made in the first quarter.
We spend roughly $90 million, we paid down debt in the first quarter, we fully funded the price of those acquisitions with cash flow from operations in the quarter and I think thats remarkable we're going to have great cash flow for the balance of the year George talked about our cash flow exceeding our net income even the acquisitions that we made in the second quarter, we're going to we're going to make <unk>.
Strides in paying off the majority of those acquisitions in 2021 with cash flow generated from the business again Thats a remarkable story of changes the profile of our business. We're using cash flow from operations to fund a lot of these acquisitions, we're going to be in a great profile from a balance sheet perspective at year end.
We think we have a lot of capacity to do more of these and we're going to do on right to the extent that they make sense for our business and they put us in a position to continue to grow and deliver for our customers, we're going to be aggressive around that so again I think.
I know, we keep saying it but.
We are truly in a privilege spot and it's very exciting times at Mastec.
Okay. Thank you thanks, Jamie.
Our next question comes from Justin Hauke with Robert W. Baird.
Yes, hi, good morning.
So I was just trying to understand the organic guidance change a little bit more I mean, it sounds like about $70 million on revenue and $20 million of EBITDA as.
Is it outside of entrained.
You beat by more than that in the first quarter and I guess, if I look at communications your revenue expectations, a little bit lower than what you had and so is the margin in clean energy. So I'm just trying to understand.
Organically wasn't just flowing through in the first quarter or has anything changed in your outlook for the balance of the year.
Yes, I mean Theres no question on some of our oil and gas pushed into Q1 right.
Did do some work in Q1 that we would've expected to do in later quarters.
That makes up the piece of earnings that didn't flow through in the year, but again I think I think what's really important and I know that there's a lot of modeling out there, but the reality is when you look at the second half of the year bright our oil and gas business, there will be probably flattish from a top line perspective. If you talk if you look at the margin profile that we've laid out for us.
Oil and gas for the year Youre going to come to high teens margins for the oil and gas business in the second half that compares to Hy 'twenty margins in the second half of last year. So if you look at the consensus analyst estimates out there on our oil and gas business in the second half of the year.
And to be down roughly $150 million in EBITDA on our oil and gas business in Q3, and Q4 and were making that up in the rest of our business and I think that's that's the transformation that we're talking about right. So our non oil and gas organic growth in the second half of 2021 is off the charts right and when we deliver on that I think that the story.
Comes together perfectly and that's what that's what we've been saying since the third quarter of last year, we're going to execute to that and I think that that will become.
Very tangible and visible as we keep reporting our quarters out for the year.
Okay. I appreciate that my second question one other clarification on the purchase price for entering the seven times is that based on the cash purchase price of $420 million and can you maybe talk about the earn outs.
Much as battery and what's that tied to just kind of thinking about that.
On the earn out is solely for 2021 performance. So based on their performance in 2021, if it exceeds trailing EBITDA then theres a kicker so whatever we pay in addition in the earn out will actually be dilutive to the purchase price multiple.
Got it thank you thank.
Thank you.
Our next question comes from Sean Eastman with Keybanc capital markets.
Hi, guys. Thanks for taking my questions Hey, Sean just just following up on that last one.
Try and flesh out kind of the targets you have set for in trend maybe over the next 12 or 24 months and and also.
I'm trying to figure out how accretive it is going to be next year with a full year contribution but.
Just looking back over over the historical period, 23%.
Growth CAGR over 10 years.
On.
Are you expecting to do with that and do you think you can.
Get margin expansion relative to the Standalone.
Performance.
Yes, so I mean for your questions right, we've talked about it being 550 million trailing 12 months.
We would expect them to grow at double digits right.
A good market.
It's not inclusive of any cross sell opportunities that we can create a mas six of the reality is that on a full company basis, we expect really strong growth in this business for 2021, we've got built about $330 million on revenue for the balance of the year than the terms that will own it.
Again for 'twenty, two we would probably expect somewhere in the $600 million range.
We do think we can improve their margins over time.
And again I mean, when we're looking at 'twenty two right. It's important to look at the total company right. So what we're saying is we expect a down year on oil and gas in 'twenty to offset by a lot of growth across all of our businesses inclusive of interest right. So if if we can hit a $9 billion revenue number in an environment, where oil and gas.
Went down $700 million ish again is a $1 billion five of growth obviously the difference between the $3 30 that will have on this year on what we think they can do on the full year of 'twenty would be part of that and the balance would be the organic growth in the rest of our business.
Okay helpful.
Sure.
A bit of a more abstract one but I was just thinking about the opportunity for oil and gas even to be sort of retooled toward this decarbonization agenda reading a lot about carbon capture.
And how that will require a lot of pipe infrastructure to transport the Seo too.
What are you seeing there is that interesting.
Super interesting right and it's a great opportunity in.
The challenge is again not getting ahead of the story right. So I think I.
I think when you look at the customer subset that we traditionally work for these are companies with amazing.
Amazing profiles within their their own financials right a lot of them have significant balance sheet capabilities, especially if they continue to pay off debt at the levels that they are paying it off these companies aren't going away.
For that these companies won't be around on a couple of years.
<unk> is somewhat in sales so those those companies or keep growing their business and more importantly, the retool their businesses for the opportunities that exists and in those in that retooling of those businesses that are going to be lots of opportunities for mastec and we're going to capture them. So on.
I'm very bullish about that business over the longer term I just think it's important to set out.
<unk> expectations versus where the market is and again hopefully we're conservative right hopefully we can be talking in the next six to nine months, how our view of our oil and gas business ended up being more conservative than it should've been.
Okay got it and I'm, just curious with the C band deployment ramp.
Wrapping up here, whether quad Jen.
It's going to be play on an interesting role whether that acquisitions has gotten more interesting as.
As we look out over it.
Back half of the year.
Look they have done really well I mean, it's been a very good acquisition for us add an excellent 2020 that actually had a decent start for 'twenty one.
Theyre touch on lots of different parts of the whole <unk> infrastructure, there's there's lots of different things that we're doing.
That haven't traditionally been been necessarily the strength of our business but.
They're a phenomenal company they've got great resources.
There's lots of things that we can offer our customers relative to their skill set and that's only going to continue to grow.
Okay terrific I appreciate the insight thanks Jose.
Right. Thanks.
And our final question comes from Noelle Dilts with Stifel.
Hi.
Thanks again, so when I look at all of these.
Drivers of the market you've got it all.
Alright.
Wireless picking up.
On <unk>.
Potentially.
Infrastructure Bill coming through.
Seems like not just in telecom, but across the business that you really could see a very tight labor market and strong demand for capacity.
First I guess, how are you thinking about that and are you starting to ramp resources and training again.
Second what do you think that could mean from a price perspective. It feels like it's been awhile since we really talked about pricing coming through but with all of the demand out there. It feels like it's a possibility over the next few years.
So any thoughts on that would be great. Thanks.
Look we view ourselves as an employer of choice in the market we've done a lot too.
Really bring in talent and growth talent and really trained people and I think we've done that consistently over the years, we've thought a lot about it.
We continue to do that right there's different points in times, where we scale up one business more than the other parts of our business today that we've got significant training going on.
Theres other parts of our business, where we feel comfortable where we're at today and we know that that's going to change over time. So I think we're very good at adapting to.
For the requirements of the market and are bringing in the right people to help us I think thats part of our part of our margin profile on some of the some of the challenges that we've had in some of these businesses from a margin perspective has just been the significant additions that we've been doing to our team in terms of adding people and training people with all of that said right our customers recognized.
This is a significant issue our customers are fully aware of the fact that labor is going to be a constraint in coming years, and I think we position ourselves with our customers.
A true thought leader behind that and one that can really help them execute their projects. So I think that I think I don't think pricing will ever be an issue around that I think it is a well recognized issue.
Over time, when you get into very tight markets it tends to be.
A better situation for for contractors at the end of the day, we're here to service our customers for a long period of time, so we're going to work with them, but that's a good position to be in right to be in to be what we think as an employer of choice working for our great Company, where you can build a career not just a job and at the same time for us to be able to fulfill our customers' needs.
We think those.
Those combined to make a lot of sense together.
Perfect. Thank you.
Thanks Noel.
And that concludes today's question and answer session I would like to turn the conference back to Jose Mas for any additional or closing remarks.
Again, just want to thank everybody for participating today, and we look forward to updating you on our second quarter call. Thank you.
And that does conclude today's conference. We thank you for your participation you may now disconnect.
Yes.
Yes.
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Yeah.