Q2 2021 MasTec Inc Earnings Call
[music].
Welcome to Mastec second quarter, 2020.1 the earnings conference call. Initially broadcast on Friday August 6.2021.
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.
Thank you Jennifer and good morning, everyone and welcome to March 6.2021 second quarter call volume statement is made pursuant to the safe Harbor for forward looking statements described in the private Securities Litigation Reform Act of 1995, and these communications we may make certain statements that are forward looking such as.
Statements regarding <unk> future results plans and anticipated Korea, and the 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 subsequent events or knowledge various risks uncertainties and assumptions are detailed in our <unk>.
Press releases and filings with the SEC should 1 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 our cloud and these communications.
Today's remarks by management, we will be discussing adjusted financial metrics are reconciled in yesterday's press release and supporting schedules. In addition, we may use certain non-GAAP financial measures and this call a reconciliation of any non-GAAP financial measures not reconciled and these comments and to the most comparable GAAP financial measure can be found in our earnings press release.
Our 10-Q are the posted Powerpoint presentations located at the investors section of our website located at Mastec Dot com.
With us today, we have Jose Mas, our CEO and George Pita, our CFO the format of the call will be opening remarks and analysis by Jose followed by financial review from George The discussions and we followed by Q&A period, and we expect the call to last about 60 minutes, we had another great quarter and a lot of good things to talk about so I'll go ahead and turnover Jose Jose.
Thanks Mark.
Good morning, and welcome to Monster ex 2021 second quarter call.
Today, I will be reviewing our second 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 and your loved ones are healthy and safe.
And I'd like to start today by highlighting how proud I am of the men and women of Mastec.
And there are sacrifices resilience creativity and commitment continue to inspire me.
Millions of families throughout the U S rely on the power and 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.
Now some second quarter highlights.
Revenue for the quarter was $1 billion $963 million.
Adjusted EBITDA was $230 million and.
Adjusted earnings per share was $1.30.
And backlog at quarter end was $9.2 billion, a sequential increase of nearly $1.4 billion.
In summary, we had another excellent quarter and are on track for another great year.
Highlight of our quarter was the continued acceleration of customer demands and opportunities as evidenced by our growing backlog.
We truly believe we are at the beginning of what we think will be transformational changes across our segments.
We see several different catalysts that could have a significant impact on our growth.
Within our communications segment catalysts include a ramp up of <unk> related activity and spend.
Continued focus on expanding fiber networks, both in rural communities and in major cities to support broadband services as well as wireless backhaul.
And increased focus on smart city initiatives with increased availability of capital from both the public and private sector.
And our electrical transmission and distribution segment catalysts include grew.
Grid modernization, including significant investments for improved grid reliability and system hardening to better prepare for storms and fires.
The growing need for new lines to tap into renewable rich geographies.
And the focus on grid architecture related to growing electrical vehicle charging demand.
And our clean energy and infrastructure segment catalysts include growing focus on sustainability and climate initiatives, including zero carbon emission goals.
Significant investments and renewable power generation, including wind and solar.
I'll focus on other clean energy generating fuels, including biomass geothermal and hydrogen.
Opportunities around carbon capture and the potential benefits.
And finally, the role of battery storage and its improving economics.
We believe we're very well positioned to benefit from the growing and accelerating trends and our business segments.
Changes in both the communication and power markets are accelerating and so many of these changes directly impact the services we provide.
The opportunities to be innovative and involved and this evolution and very early stages represents how far we've come as a business and the value that our customers know we can provide.
For example, we've continued to make significant investments and increasing our capabilities to meet customer demand.
Our team member count increased year over year from 18000.
The $26.500 team members at quarter end and was up sequentially by nearly 6000 team members.
Over the last few quarters, we've talked about our strategic longer term goals and our future business mix.
Considering the challenges and the oil and gas industries, we laid out a path to achieving an annual revenue target of $10 billion with double digit margins.
1 of our key highlights of 2020 was our ability to significantly grow non oil and gas revenues and EBITDA.
Our full year guidance that we provided today reflects continued diversification as we expect our non oil and gas business to grow over 20% and revenue and over 30% and EBITDA in 2021 with significant acceleration and the second half of 2021.
While this is good progress.
We know we can do better.
While our communications segment is performing as expected financially our transmission and clean energy segment have underperformed our margins there.
This underperformance in both segments has been limited to a small number of projects.
More importantly, we are nearing completion on these projects and excluding these projects the rest of the book of business is performing well.
We expect sequential margin improvement and both segments and the third quarter with further improvements and the fourth quarter.
We expect to exit the year and both segments with strong momentum improve margins and significant opportunities for further growth in 2022.
Now I'd like to cover some industry specifics.
Our communications revenue for the quarter was $630 million and margins improved 290 basis points sequentially.
Highlights for the quarter included our growth with T mobile, whose revenues again increased 4 fold over last year's second quarter and was Mas the seventh largest customer for the quarter.
Comcast revenue was also very strong and the quarter, increasing over 30% from last year's second quarter.
And that growth was offset with expected declines in both our Verizon and AT&T business, which were both down over 25%.
Both AT&T and Verizon were very vocal about the importance of the <unk> spectrum auctions and their business. We expect revenues for these 2 customers, especially AT&T to accelerate and the second half of the year with significant growth opportunities heading into 2022.
Over the last few quarters, we've talked about the opportunities related to the rural digital opportunity fund or our dock, which will provide $20 billion of funding over the next 10 years to build and connect gigabit broadband speeds and underserved rural areas.
And the <unk> Fund for Rural America, which will provide up to $9 billion and funding over the next decade to bring <unk> wireless broadband connectivity to rural America.
Today, we are pleased to report the largest quarterly sequential segment backlog increase and the Companys history commute.
Communications segment backlog increased sequentially by $489 million and was driven by bookings across all segment and markets, including wireless and fiber.
<unk> and fulfillment work.
We are in early stages of what we expect to be a very robust and growing telecom infrastructure market and feel we are very well positioned.
Moving to our electrical transmission segment revenue was $232 million versus $128 million and last year's second quarter.
The increase was mostly due to the interest acquisition, which contributed 2 months worth of revenue.
Entrant performed well and the quarter and we're excited about the growing opportunities.
Customer reaction to the acquisition has been very good and we are seeing a growing number of opportunities for them for 2022 and beyond.
We believe the changes and electrical distribution and transmission needs led by grid, Modernizations and hardening and reliability and renewable integration coupled with the transition towards increased electrical vehicle usage will have an enormous impact on the last mile distribution of electricity.
Moving to our oil and gas pipeline segment revenue was $621 million and margins remained strong.
Our guidance assumed project activity will be pushed into 2022 because of regulatory delays.
As a reminder, last year, we forecasted a long term recurring revenue target of $1.5 billion to $2 billion a year, assuming a continued depressed oil and gas market.
As commodity prices have increased and maintained at strong levels, we have seen an increase and customer requests as we are working with a number of customers repricing previous projects and are optimistic that we will see an uptick and opportunities heading into 2022.
We continue to see strong demand for integrity services gas distribution and line replacement activity.
We've also seen a number of developments.
And pipelines for both carbon capture and hydrogen we.
We are focused on continuing to diversify our revenues and this segment.
Moving to our clean energy and infrastructure segment revenue was $482 million per the second quarter.
While we're focused on margin improvement as I discussed earlier opportunities continue to expand segue.
Segment backlog at quarter end was at record levels with the sequential increase of $320.20 million and a year to date increase of $680 million.
With the new administration, and a clear focus on sustainability and clean energy, we have seen a significant increase and planned clean energy investments from our customers as they improve their carbon footprint.
As a leading clean energy contractor and partner Mostek is uniquely positioned to benefit from these investments.
We believe our diversification is our strength and this market as we're capable of meeting any of our customers demands.
We are actively working on renewable projects, including wind solar and biomass.
Base load gas generation projects, including dual sourced hydrogen capable projects as well as our growing presence and the infrastructure market.
To recap we've had a solid first half of 2021 and are very excited about the opportunities and the markets we serve.
Finally, I'd like to highlight the potential opportunities of an infrastructure bill.
With a significant presence and the telecommunications market, which include <unk> build out capabilities, our involvement and maintaining and building the electrical grid, coupled with our exposure to the clean energy market, including wind and solar biofuels hydrogen and storage and our recent expansion into heavy infrastructure.
Including road and heavy civil we feel we are uniquely positioned to benefit from potential infrastructure spend.
We are confident we can hit our growth targets with solely private investments and infrastructure.
But do recognize the potential acceleration and our markets with significant government spend.
I'd like to again congratulate and thank the men and women and master for their fantastic performance.
I'm honored and privileged to lead such a great group.
The men and women of Mostek are committed to the values of safety and environmental stewardship.
Integrity, honesty, and and 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 and a challenging environment and position ourselves for continued growth and success.
I will now turn the call over to George for our financial review George.
Thanks, Jose and good morning, everyone.
Today, I'll cover second quarter financial results and our updated annual 2021 guidance expectations.
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 second quarter results with revenue of approximately $1.96 billion.
A 25% increase over last year.
Adjusted EBITDA of approximately $230 million and adjusted EBITDA margin rate at 11, 7% of revenue.
This represented a 39% increase and adjusted EBITDA dollars and a 120 basis point increase and adjusted EBITDA margin rate over last years second quarter.
Second quarter backlog of $9.2 billion.
Representing an all time record high for Mastec.
Importantly, our non oil and gas segment backlog sequentially increased $1.6 billion.
With record second quarter backlog and communications.
Clean energy and infrastructure and electrical transmission.
We believe this backlog growth supports our expectation that and market trends are significantly shifting and gathering momentum in these segments are 40, mastec significant future opportunity.
Our continued focus on working capital management. During 2021 has allowed us to easily fund organic working capital needs.
While investing approximately $600 million and strategic acquisitions.
As of the end of our second quarter, we maintained a strong balance sheet and capital structure with liquidity approximating $1.2 billion and.
<unk> leverage metrics.
Okay.
Now I will cover some more detail regarding our second quarter segment results and guidance expectations for the balance of 2021.
Okay.
Second quarter Communications segment operations performed generally in line with our expectations with revenue of $630 million inclusive inclusive of expected temporary lower levels of wireless project activity prior to the upcoming construction ramp up for C band Spectrum Awards.
Second quarter Communications segment, adjusted EBITDA margin rate was 11, 5% of revenue a 290 basis point improvement sequentially.
Okay.
Our annual 2021 Communications segment expectation is that revenue will approximate 2.6 to $2.7 billion.
With annual 2021, adjusted EBITDA margin rate, improving 90 to 110 basis points over 2020 levels.
Regarding some color on expectations during the second half of 2021, we expect third quarter year over year revenue growth and the mid to high single digit range with fourth quarter year over year revenue growth accelerating and the mid to high 20% range.
We also expect that third quarter adjusted EBITDA margin rate will show a slight sequential improvement with more substantial acceleration during the fourth quarter our segment revenue growth accelerates.
Second quarter clean energy and infrastructure segment or clean energy revenue was $482 million.
And adjusted EBITDA was approximately $16 million or 3.2% of revenue.
Second quarter revenue and operating results were negatively impacted by project startup delays and project inefficiencies.
As we have mentioned before we have expanded our operations and head count and this segment very quickly in order to meet increasing demand and with that expansion, we've experienced some growing pain inefficiencies.
During the second quarter, we estimate the combination of startup delays and project inefficiencies inclusive of weather negatively impacted second quarter segment operating margins by 350 to 400 basis points.
As we look forward, we expect improved performance during the second half of 2021 with second half revenue approximating $1.2 billion.
Slightly over a 40% increase compared to first half 2021 levels.
With adjusted EBITDA margins and the range of 7% to 8% of revenue.
And this is due to the leverage benefit of higher forecasted second half 2021 revenue levels and the benefit of exiting 2 underperforming projects, which are approximately 75% complete as of the end of the second quarter.
We are very excited that clean energy second quarter backlog reached a new all time record of $1.7 billion.
And believe that this segment is well positioned for significant long term revenue growth and adjusted EBITDA margin rate improvement.
Our annual 2021 clean energy segment expectation is that revenue will range between 2% to $2.1 billion.
With annual 2021, adjusted EBITDA margin rate improvement and the 20% to 70 basis point range over the prior year.
Regarding our second half 2021, clean energy adjusted EBITDA margin rate expectations.
We expect sequential improvement and the third quarter as we continue to experience some impact of the 2 previously mentioned underperforming projects, which will generate revenue at no margin.
Additionally, we anticipate that our highest margin performance will occur during the fourth quarter due to project mix with a diminished and minimal impact of these 2 underperforming projects as well as a heavier concentration of project completions expected during the fourth quarter.
Second quarter oil and gas segment revenue was $621 million and adjusted EBITDA was $138 million Gen.
Generally in line with our expectation.
We currently expect annual 2021 oil and gas segment revenue will range between 2.4 to $2.5 billion.
With the continued expectation that annual 2021, adjusted EBITDA margin rate for this segment will be and the high teens range.
This expectation includes the continued assumption that selected large project activity will move into 2022 due to permitting approval delays.
This delay is expected to manifest itself during the fourth quarter and thus, we expect strong year over year revenue growth and the third quarter with a lesser level of fourth quarter project activity as delayed project activity shifts into 2022.
Second quarter electrical transmission segment revenue was $230.233 million.
And adjusted EBITDA margin rate was 4% of revenue.
Second quarter backlog was $1.3 billion and.
<unk> $800 million sequential increase.
We completed the acquisition of interim which focuses primarily on electrical distribution mid quarter and this added approximately $100 million of revenue to this segment during the quarter as well as most of the segment's sequential backlog growth.
Given the size and expanded offerings of entrants acquired operations. We are evaluating a segment name change to better reflect our operations and we expect to advise on our determination we report third quarter results.
In summary interest operations performed well and as expected during the partial quarter period, while our legacy electrical transmission operations were impacted by weather related project inefficiencies and increased closeout costs on 2 projects, which are over 90% complete as of the end of the second quarter.
These 2 projects negatively impacted second quarter electrical transmission segment operating results by approximately $8.5 million and 370 basis points.
Looking forward to the balance of 2021, we expect annual 2021 revenue for the electrical transmission segment to approximate $950 million to $1 billion.
And annual 2021, adjusted EBITDA margin rate to approximate 6.5% of revenue.
Relative to the remainder of 2021 expectations inclusive of interim we anticipate that second half of 2021 revenue levels will range and the low $600 million range a year over year increase of approximately $350 million.
Second half 2021, adjusted EBITDA margin rate for this segment is expected to approximate 8% of revenue due to the combination of improved legacy operations as we exit 2 underperforming projects and the benefit of higher margin entrant MSA operations.
We continue to believe that multiple macro and market trends, including renewable power generation Inc.
Increased distribution needs to support electric vehicle expansion and required grid investments for storm and fire hardening are continuing to develop and should provide our expanded segment operations substantial future growth opportunities.
Now I will discuss a summary of our top 10 largest customers for the second quarter period as a percentage of revenue.
Enbridge and AT&T were both 12% of revenue.
AT&T revenue derived from wireless and wireline fiber services totaled approximately 9% and install to the home services was approximately 3%.
On a combined basis. These 3 separate service offerings totaled approximately 12% of our total revenue.
As previously indicated this revenue level included expected lower first half 2021 wireless services revenue as project activity has temporarily slowed while AT&T prepares to initiate C band spectrum construction.
Also as a reminder is important to note that these offerings, while falling under 1 AT&T corporate umbrella are managed and budgeted independently within that organization, giving us diversification within that corporate universe.
Lastly, with At&t's recent divestiture of its Directv operations, we will no longer report Directv install to the home operations as a part of AT&T revenues starting next quarter.
Next era was 8% of revenue comprising services across multiple segments, including clean energy communications and electrical transmission.
Okay.
<unk> midstream and Comcast were each 5% of revenue.
T Mobile, Duke energy and energy transfer were each at 3% of revenue and.
And summit midstream midstream and elite were each 2%.
Individual construction projects comprised 68% of our second quarter revenue with Master service agreements comprising 32%.
With the combination of unexpected resurgence and wireless MSA work, coupled with the <unk> acquisition, whose revenue is virtually all MSA driven.
Future MSA revenue is expected to increase as a percentage of our total revenue highlighting and increased level of mastec revenue expected to be derived on a recurring basis.
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 and a single point and time.
At June 32021, we had record total backlog of approximately $9.2 billion up.
About $1 billion from second quarter last year, and up $1.3 billion sequentially from last quarter.
Importantly, this backlog reflects record segment backlog levels across our non oil and gas segments, namely communications.
Clean energy and electrical transmission.
We believe this demonstrates the strength of demand and our non oil and gas segments, validating our expectation that accelerating and market trends and these segments will offer substantial growth opportunities for mastec.
Now I will discuss our cash flow liquidity working capital usage and capital investments.
During the second quarter, we easily funded working capital associated with over $120 million and organic revenue growth.
As well as approximately $500 million and acquisition activity.
We ended the quarter with $1.2 billion and liquidity and net debt defined as total debt less cash and cash equivalents at $1.3 billion.
Which equates to a very comfortable 1.4 times leverage metric.
Our year to date 2021 cash provided by operating activities was $345 million $180 million lower than the first half of 2020.
This performance is impressive as our first half 2021 cash flow includes working capital funding requirements associated with approximately $750 million and higher revenue levels when compared to last year and thus this performance was possible due to our strong working capital management.
We ended the second quarter of 2021 with Dsos at $80 compared to 86 days at year end 2020, and 90 days for the second quarter last year and this level is slightly below our target DSO range and the mid to high Eighty's.
In summary, we are proud of the strength resilience and consistency of Mas tax cash flow profile.
As we look forward to the balance of 2021, we expect continued strong cash flow generation. Despite the working capital associated with our 2021 revenue growth and expect that annual 2021 free cash flow will once again exceed adjusted net income.
Assuming no second half 2021 and acquisition activity net debt at year and is expected to approximate $1.1 billion, leaving us with ample liquidity and expected book leverage slightly over 1 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.
And this combination gives us full flexibility to take advantage of any potential growth opportunities to maximize shareholder value.
Moving to our 2021 annual guidance view.
We project annual 2021 revenue of $8.1 billion.
With adjusted EBITDA of $930 million or 11, 5% of revenue and.
And adjusted diluted earnings of $5.45 per share.
Our current view represents a slight decrease and the annual 2021 revenue expectation, primarily due to some project activity slippage to 2022 and communications and clean energy.
While reaffirming the annual adjusted EBITDA view of $930 million.
And increasing our adjusted diluted earnings per share by 5 to $5.45 per share.
The increase and adjusted diluted earnings per share is primarily due to lower expected interest and income tax expenses.
As we have previously provided some color regarding our segment expectations I will now briefly cover some other guidance expectations.
We anticipate net cash capex spending in 2021, and approximately $120 million with an additional $160 million to $180 million to be incurred under finance leases and this expectation is inclusive of expected capital additions for first half 2021 acquisitions.
As we have previously indicated as our and Mark and 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 expect annual 2021 interest expense levels to approximate $56 million.
With this level, including approximately $600 million and acquisitions funding activity during the first half of 2021.
For modeling purposes, our estimate for 2021 share count continues at 74 million shares.
We expect annual 2021 depreciation expense to approximate 4.2% of revenue inclusive of first half 'twenty 1 acquisition activity.
As we have previously indicated this expectation includes an increased level of 2021 oil and gas segment depreciation expense when compared to 2020 as we are utilizing conservative depreciation life and salvage value estimates 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 21 levels and approximate 3.5% of revenue.
We expect annual 2021 corporate segment adjusted EBITDA to be a net cost of approximately 1% of overall revenue.
And lastly, we expect that annual 2021, adjusted income tax rate will range between 24% and 25% with the expectation that the third quarter tax rate may be slightly lower than the annual rate.
Our third quarter revenue expectation is $2.3 billion with adjusted EBITDA of $267 million or 11, 6% of revenue and earnings guidance at $1.71 per adjusted diluted share.
This concludes our prepared remarks, I will now turn the call back to the operator for questions and answers operator.
Yes. Thank you if you'd like to ask a question. Please signal by pressing star 1 on your telephone keypad.
And then limit yourself to 1 question and 1 follow up.
You are using a speaker phone. Please make sure your mute function is turned off the line.
And your signal to reach our equipment.
And again press Star 1 to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
And we will first go to Noelle dilts with Stifel.
Hey, guys good morning.
And I was hoping 1 and all.
I was hoping we could dig into communications.
Bit more first I'm curious.
You're starting to see the acceleration that would help to drive that third quarter.
Mid to high single digit growth rate youre talking about or if thats really dependent on.
Activity picking up next month.
And second.
And I'm curious, how you're thinking about 2022 at this point it seems like your fourth quarter guidance would get you pretty close to a $3 billion number, but if you could kind of give us some thoughts on how youre thinking about 'twenty 2 both from a revenue and a margin perspective that would be great. Yes.
Yes sure to also I mean, I think we came in and of the year knowing that the first half was going to be somewhat challenged from a revenue perspective.
Considering what was going on with the spectrum auctions.
You look at our first half of the year Ori.
Organically were down about 7% and that business.
Most of that coming from the wireless side of the business with some of the delays from some of our bigger customers. When you look at our second half we're modeling about a 15% year over year increase with more of that coming and the fourth quarter than the third quarter and Youre right. I mean, if you take the revenue levels and the fourth quarter and you kind of annualize them out.
We start getting really close to that number I think there is going to be the.
Opportunity to further growth from there. So I think if you look at the street estimates that are out there today on the comp side, we obviously haven't given guidance, but I think it's about $3.1 billion for next year I think we're comfortable with that.
Think debt when you look at the backlog increase that we've had and communications I think that's probably 1 of the highlights of our quarter I think the opportunity for further backlog growth exists and the business I think.
To be honest.
Don't think we've ever seen the level of activity that we're seeing today and I think it's only going to going to escalate I think so many people are still in very early stages of their planning out for 'twenty, 2 and beyond and.
And again I think we're positioned really well I think we're in a great spot and I think we're going to continue to see the opportunity to continue to grow that business pretty significantly in the coming years.
Okay, great Thanks and.
And then I wanted to shift over to transmission and clean energy, obviously really great backlog growth. There you mentioned a few projects having some challenges.
I'm curious about is if there've been any changes and you're bidding processes or contact evaluates and management.
There anything you can kind of point to that can you give us some confidence that the rest of the book of business will deliver to your margin target.
Sure, they're both a little different right. If you think about clean energy and we've had unbelievable growth over the last 3 or 4 years.
It's hard to imagine, but a few years ago that business was a $300 million business and this year will exceed $2 billion and it should have a lot of growth and 22. So we've come a long way, we've obviously had.
A lot of growth pains.
Net of manifested themselves here more recently, we're not happy about it.
And we're confident that we've got it under control and we've mitigated these issues from happening and the future but.
And I think transmission similar right we've had.
And our mix change and business there over the years I think we're we started to grow that a little bit more organically. We're having some of the same issues, we're going through somewhat of a transformation of mastec right and we've talked a lot about it I think that we've got incredible opportunities. We're obviously trying to.
Grow our market share as much as we can and with that again, we've had some pains, we're paying for it I think the right strategic investments long term.
And I think we're mitigating as best as we can and as we look into the third and fourth quarter I think you'll start to see improvements I think George laid it out really well in the script.
But in both businesses, we expect improvement in Q3, we expect.
Being more close to normal and Q4.
And you truly back out.
<unk> projects and each of those that we had issues with and the rest of the business is looking really good. So we need to we need to deliver across the board and I think if we do youll see us substantial change of our financial model and I think it will.
And that will make it a lot easier for everybody and understand what we're trying to accomplish long term.
Yes.
Great. Thank you. Thanks.
Thanks, Paul.
We'll go next to Andy Kaplowitz with Citigroup.
And good morning, guys Hey.
Hey, good morning, Andy.
So maybe just following up on <unk> question.
But taking a sort of bigger picture to the company as you go and you did give us that 9 billion target for 2002. So when you think about the overall business is obviously supply chain and COVID-19 issues labor availability have sort of.
Ben and issue here over the last quarter for most companies, but also there is a lot higher commodity prices.
Do you get to that 9 billion, maybe a different way to get there through higher oil and gas versus clean energy any more commentary you can give us would be helpful.
Look I think when we think about 2022 and again, we haven't given guidance, but obviously estimates are out there and we track and follow them.
And I think I think consensus is around 9 billion and today I think that with the reduction in oil and gas of about 20% to 25% from where it will be in 'twenty and.
2000, and 2021 rate and.
We kind of agree with that we think it's attainable.
For us to hit that are non oil and gas businesses up to grow 15%, 20% and 22, which we think again is very feasible relative to the opportunities and the backlog growth. We are seeing when you look at the margin profile of the business next year from a consensus perspective.
We expect oil and gas profits to come down weeks. This year non oil and gas profits are growing about 30%, we actually expected to grow closer to 50% next year. So.
And it kind of lines up with the expectations for 'twenty, 2 where they are at but I think that where we have to keep in mind and what it means for the future right. If we're growing revenues at 15% and non oil and gas margins at 40%, 50% next year, what that means for 'twenty 3 is a pretty awesome story right. So we would expect 2023 revenues to grow substantially more than <unk>.
2 off of 'twenty, 1 because of the normalization of oil and gas and we would expect the same on the margin side. So while a $9 billion target for 'twenty 2 is reasonable and the reality the growth profile that we should experience and 23 exceeds the growth profile that we should exceed and 'twenty 2 and again I think that the backlog growth that we're seeing and the opportunities there.
And we're seeing and the way that our business is transforming before our eyes I think it bodes well and and I think it supports that story and I think we're very confident about it. There's no question that today, our customers are worried about resources.
Thank you.
And it's creating a lot of opportunities for companies like ours.
And there's no doubt in my mind the customers.
I think scale is extremely important as do we I think scale is going to be the name of the game for the next few years. That's why we highlighted today our team member growth and it's quite remarkable we added 8500 team members and the last year. We added 6000 team members sequentially some of it through acquisitions most of it and say half of it through acquisitions out of it organically.
We're proud of that right, that's obviously going to create some pains and the short term, which we felt but long term and positions us incredibly well to continue to take advantage of the growth and our markets.
And maybe for a follow up I'll, just ask you to Jose like the ability to sort of manage this and continue to add to the M&A pipeline.
He can talk about sort of what you see out there net leverages <unk>, obviously still really low, but you've already done a lot of deals here over the last 2 years. So how much more can you do before sort of management gets dreamed of.
And the portfolio as you said getting so much larger and do you expect to continue and do deals here. This year with you and good balance sheet.
Something we're very mindful of obviously it depends on what Youre buying right I don't I don't think we are and are positioned today.
To do fix or uppers right. We've got we've got a lot on our plate, but theres a lot of good companies out there that I think add a lot of value I personally believe that we're going to see significant consolidation and our space.
And again I think it's because of the scale I think scale has never mattered more and our business and my opinion from a and from a customer perspective. So there's lots of small medium and large sized businesses that are out there I think our M&A funnel has never been as full as it is today. So we've got to find the right mix of opportunity and value that we think increase the shareholder value.
We think it's out there we think we do think we'll be more active and the second half of the year. Obviously all of our commentary is around what we think we can do organically, but there are opportunities and we think we've got the ability to do the right deals and that's really what we're focused on.
Yeah.
We will go next to Marc Bianchi with Cowen and company.
And thank you.
I wanted to start with the.
And with what's in the infrastructure Bill here and your comment earlier about how you think you can kind of hit your targets with with private spend I'm curious.
How those targets change as we start to layer in some of this upside from the infrastructure Bill and also what do you think the timeline is to get better clarity on that when we hear about that as early as the beginning of 'twenty 2 or what are your thoughts on that.
And our market is a great question I think.
It's obviously something we're very bullish about it.
It's great for our business I think when you when you read the infrastructure Bill and.
You almost go through every line of it and it impacts mastec in some way right I think we've done a great job of diversifying ourselves and.
And quite frankly, I mean, the infrastructure build almost skills and at times that it was written for us.
With that said I think that we can't get ahead of ourselves that money takes time to work itself through the process. We wouldnt expect significant contributions from that and 2022.
It's probably more of a 2023 event and there's lots of unknowns. There is a lot of.
And Theres a lot of credit potential opportunities there that that might expedite some of that so we've got a lot of customers that.
Our paying attention and are obviously trying to.
To see how it affects their business and ways in which we could help them and and they are lobbying for that and they are pushing for that so I do think there is a possibility of us seeing some activity and 22, but it's more likely 'twenty 3 and that's our view and it so as we think about our 'twenty 2 book of business and what we're doing to accomplish there while it's great and it's great.
And have in the background and it's not something that we think we need to be able to accomplish these numbers we've talked about obviously if it comes.
It's going to have a big impact on our business. If it comes sooner and it's going to have a big impact on our business, but I don't think we're ready to really kind of put numbers to it yet.
Yes.
I wanted to switch over to oil and gas and you mentioned about talking to customers about repricing some projects.
I'm curious if that.
Changes.
The longer term outlook for margins and the business I think you've previously talked about high teens to low twenties is sort of the mid cycle margin here.
Do you think that's still the right margin if I kind of look at what the guidance implies for the back half of the year here were probably in the in the mid teens or so so maybe if you could just help us.
Talk about that aspect.
Yes, Youre right. So our second half guidance is mid teens and margin I think if you as we're thinking about 'twenty 2 today.
We're pushing that forward into 'twenty 2 so.
Everything we're doing internally is based on that billion $5.2 billion dollar opportunity at the at the mid teens rate, obviously as we get more comfortable we're probably at the higher end of that hopefully as the year goes on.
And beyond 'twenty 2.
I do think a lot of these things are going to present themselves right, whether it's carbon capture hydrogen opportunities related to pipeline I think that.
Between what's happening with commodity prices and between what's happening with new technologies I think the longer term outlook for our pipeline business has dramatically improved over where it was 6 or 12 months ago. There is no doubt in my mind about that I think it's going to and it's going to be a great business once again and and I think we'll end up doing really well weather, but I think we're going to be more mark.
Great for 'twenty, 2 I think our expectations for 'twenty, 2 we're going to be a little bit more moderate and.
And we're hopeful that and we planned our business around those ranges to the extent that any of these things happen and come through and then obviously it will be upside to that business. Both from a revenue perspective, and probably from a margin perspective as well.
We'll go next to Jamie Cook with credit Suisse.
Okay.
Good morning, sorry can you hear me.
And thank you.
Sorry, and managing multiple earnings calls here I guess my first question is obviously.
And the top line growth has been great.
You talked about $10 billion.
Okay.
Forget that you put out there.
That looks very keen and Bob just wondering how youre thinking about.
The profit profile.
Segment like weather.
And the profit profile and exchanges, where the oil and gas is going to be higher margin and the cash.
Our business continues to do better relative to where you were historically and wondering if you could talk to that and then 2 on <unk>.
And transmission and clean energy and infrastructure, just wondering if some of the backlog growth.
And which has obviously been great and the margin profile of that business over the terms and conditions different than what we have and team which would support higher margin as you think about 2022 and beyond.
Yes, so Jamie again, if we go through our businesses right and we look at our Com business, we expect to and this year.
Right at about 12, or just under 12% full year margins I think when you look at the growth that we're seeing and the scale and.
And obviously the utilization rates that we expect going into 'twenty, 2 we're probably expecting a further margin improvement and that business. So let's call. It 13 points, which is and kind of where consensus is today, we think that's an achievable target and 1 that.
Obviously should improve as scale continues to increase so we feel really comfortable about that when we think about oil and gas again, we've talked about mid teens for 'twenty, 2 and beyond again, we've laid out and I think today a lot of things that could potentially improve that over time, and we're feeling better about it but we're not we're not ready to commit to that.
And when you look at whats happened and.
And our transmission business and again I think if you back out some of these issues that we've had and you look at the general book of business. Obviously entrant has been a great addition to that segment and it's performing extremely well, but all in.
With the with the exclusion of a couple of projects, we would have been closer to 8% to 8%, 758% for the second quarter and.
And we think that number improves entrant entrant performs at a higher number than that so as long as we can get our <unk>.
Base business.
To those kind of levels, we ultimately think that thats, a double digit business. We've said that for a long time, we think thats achievable. We think we can achieve that as early as 2022, we will see significant improvements and that business as we exit the year right and again it'll be we should see improvements and Q3 with further improvements further improvements in Q4, but thats the profile of our ex.
Mutation and then when you look at clean energy, it's kind of a similar story right. If you kind of normalize for the issues that we saw as George laid out it would have added another 3.5 points or so to margin.
I think we'll see some of that come back in Q3, I think we can exit the year at a margin profile, that's closer to that we've talked about that business being.
A high single digit margin business I think as we start thinking about 'twenty 2.
That 8% range or somewhere around that 8% range is probably our initial expectation and theres a lot of things that can make that better, but obviously, we haven't been there so we need to deliver.
But thats kind of the expectation and the short term and then I think as you think about 'twenty 3 and beyond as we continue to grow all of those margin profile should slightly improve with what's happening and the market.
Okay. Thank you.
Thanks, Jamie.
And we'll go next to Steven Fisher with UBS.
Yeah.
Thanks, and good morning.
Follow up on.
Some of that question from Jamie I mean, these new solar projects that youre, putting into the clean energy business. They do come with a bit of a learning curve and you have likely factored that into your margin.
Far just curious if you could talk a bit about how that experience is playing out after a couple of good quarters of bookings.
And how youre managing that learning curve and kind of what you're planning for for the next couple of quarters.
Yes look I think we're at this point I think we're a substantial contractor and any of these businesses right.
We've now performed.
A couple of hundred million dollars and solar work, we've got a lot more to performance.
Rapidly growing piece of our business.
Obviously, our projects that we've executed and done very well and and we've got projects and we've executed and haven't done well on <unk>.
The most important part is we know exactly when we have and executed why.
And we kind of live in this and the oil and gas business. Many years ago right you take the lessons learned you build them and do your contracts you understand what the risks are you start doing a much better job of mitigating the type of projects that you work on and so part of this is as much as anything else is being selective about the customers and the particular projects that you work on.
Some of that takes time to learn.
And Unfortunately, I think we've had to learn some of that the hard way, but I think we've.
We've learned a ton we've changed what we do because of it we've changed the type of projects that we're chasing because of changes and contract structures because of it. So I think it will prove out.
And again the proof is in the pudding, we got to deliver we can talk about it we just got to deliver and we understand that and we accept that but it's also important to kind of communicate and.
And why we think we've had the issues and what we're doing about it and.
Promise you, we're hyper focused on that here. We know every single project, where every single issue is and how we're mitigating both on the existing projects as we close them out and more importantly, how we are mitigating these things for them not to happen again.
Fair enough and then I know the timing of bookings is always hard to project, but really just curious how you're thinking about organic book to bill in the second half of the year just trying to gauge some of the Lumpiness that may be there and then.
And your various segments.
Look it's again it was the strength of the quarter and our minds.
And our oil and gas bookings went down but if you look at the rest of the non oil and gas business. They were up about $1.6 for the quarter.
About half of that came from the interest acquisition and the rest of it was organic right $487 million and columns $320 million and clean energy.
There is no doubt in my mind that and our non oil and gas business, we haven't hit the backlog and any of those segments.
By any stretch of the imagination, so I fully expect backlog too.
Probably significantly increase and all of those.
It's not going to be linear right third quarter's a huge quarter for us from a revenue perspective.
And backlog tends to fall and and lumpy cycles it could grow in Q3.
No doubt that I know over time it will grow.
Pinpointing exactly when they grow and based on awards and based on what we're expecting we will see there is a lot and we have a lot out there today that we're negotiating bidding.
Really good about but again, whether that hits and 1 particular quarter and others hard to it's hard to forecast, but I think the trend line of backlog is going to be excellent for a long time.
And we will see how it plays out.
Terrific. Thank you.
Thanks, Steve.
We will go next to Brent Thielman with D. A davidson.
Hey, Thank you good morning.
Good day on pipeline just given some of the positive customer discussions you talked about and the opening commentary.
And you think bookings.
And again to accelerate year and the second half and then just wanted to get a feel for the carbon capture and hydrogen opportunities and when do you think that might be kind of impactful to this segment.
Yes look I don't.
I think a lot of the discussions are about what's going to happen in 'twenty, 2 and beyond so I do think that we're going to have an opportunity, especially in the second half of 'twenty 2 to see acceleration. So I wouldn't expect backlog to really meaningfully change and in any positive way probably until <unk>.
Much closer to that period, probably the first half of 'twenty 2 so I don't think its something thats imminent.
But it's obviously positive and something we're pretty excited about as we think about the new technologies.
And theres already named projects out there that are and the thousands of miles on both of those issues, it's unbelievably meaningful to the industry. It will have a massive impact.
There's still a lot of unknowns around those and what ultimately happens I think.
You can you can find articles around the infrastructure bill and potential funding sources within the infrastructure build to help some of those get off the ground. So it's interesting.
But again, it's relatively early so I think thats that more meaningfully impact 2023 and beyond more than it does 2022.
Okay. Appreciate that and then that the massive bookings and clean energy you do a lot of different things and that and that business can you just talk about some of the things that are really driving and I've heard went a little bit slower debt.
Solar and other areas really strong and I'm, just curious kind of what what's really fueling that right now.
Yes look again, I mean, I think that we're seeing a transformation of electricity generation and before our eyes right customers are looking at all different types of new initiatives.
You've got from obviously, all the different renewable sources and I think they are all doing well I think I think I think even wind is holding and a lot better than people thought the solar business is growing like crazy.
A lot of the alternative fuels are things that there is an enormous amount of focus and investment on you've got carbon capture aside from just the pipelines, what's happening and the whole side of that business you have the move to hydrogen there's there's activity everywhere.
We've picked up a little bit of work, that's pretty broad based and diverse we're excited about that.
And and.
The Crazy part is I think we're just scratching the surface I think we're going to see again further significant increases to backlog over time and the opportunity to grow that business since a significantly impact the revenues of that business are probably greater than anything else that we've got and the company.
We will go next to Adam Thalheimer with Thompson Davis.
Hey, Good morning, guys just 1 from me.
Jose on the C band build once that gets started and how long do you think it lasts.
And can you compare that build to prior wireless cycles.
Yes, hi, and thanks for the question I think when you think about.
<unk> and general right and the differences between <unk> and what we've historically seen is historically the wireless build outs have been a macro tower initiatives. So you think about the big sites that you see the rooftops and you see and the antenna change outs and the wiring and associated with that and then you move to <unk> and <unk> and the true debt.
Suffocation of the network right, which is where you get into the C band and you get into these small cells and <unk>.
And when you actually.
Sift through it and really understand it it's pretty much and antenna every 400 feet.
And thats almost unfathomable to think about but thats, what thats ultimately what has to happen. So.
To your question of size and scale, it's not anywhere near anything that's ever been done before it from a from a network element perspective, it's multiples of anything that's ever been tried before and then.
<unk> on top of that the fact that you know.
It doesn't it isn't good with building penetration and now you need and building solutions everywhere and in addition to that it just further.
And it makes it more complex and mix of networks and more complex makes the the whole integration of the networks more complex. So it's.
For us it's super exciting because there's lots of different avenues, where we can work and lots of different avenues, where we think we can win business and grow our business. So.
It's completely different than any previous.
Technology.
Shift and the wireless side.
It's for all intents and purposes. It really is just starting and it's going to it's going to morph over a long period of time. This is not a short cycle. This is going to be a really long cycle.
So again, it's kind of apples and oranges from what we've done in the past, but I think again, we positioned ourselves over the last few years to really.
Grow our resources and more importantly grow our capabilities. So today, we feel like from RF engineering, all the way to optimization and integration, which is on the backend.
And we're capable of supporting our customers with capable of supporting our customers at scale and again, I think thats going to be very meaningful and proved to be very beneficial domestic overtime.
Thanks, Ed.
Thanks, Adam.
We'll go next to Manto with B Riley Securities.
Good morning, Jose how are your margin.
How are you.
And all most of my questions have been answered I just have 1 question regarding your M&A pipeline and you definitely mentioned that it is strong and thats ever been given the recent acquisitions that you've done and the first year and even.
And last year and just wondering if you could talk a little bit about where you are most focused and in the near term.
Look it's pretty broad based I think.
We're obviously focused on our non oil and gas businesses, so whether its communications the electric grid and clean energy those are the 3 areas, where we're most focused we are seeing opportunities across all of them, which is which is great and we're seeing good opportunities across all of them and.
And I think at the end of the day for US, it's a determination about where's the right value.
Versus opportunity mix right, so where are the companies, where we think that we can bring tremendous value to based on what the market is doing.
And how does it benefit how do we benefit both parties and that and ultimately if we can find that formula and we think again that we're getting we've got the ability to significantly grow shareholder value because of them and then we will do them. So that's all right and and evaluation process again, there's there's there's a lot there we don't need to do a deal to be successful, we don't need to do.
And with deal to do what we've talked about but again.
Im personally of the belief that we're going to see an unbelievable amount of consolidation.
Within our within our peer group and within what we do and I. Ultimately think it is important because I think the name of the game is going to be scale and those that have scale are going to be extremely successful.
Great. Thank you good luck with the bank's NIM.
Appreciate it.
We will take our last question from Sean Eastman with Keybanc capital markets.
Hi, guys I like this save.
Save the best per last approach to their earnings calls here.
We'll keep it that way.
Yeah.
And so maybe just to expand on the comments on scale.
You've mentioned a few times on the call here Jose and maybe commenting on that relative to the comms.
<unk> trajectory, so that 13% for next year.
Expanding on that and 23.
B, new highs for that business.
If I'm not mistaken so.
Yes.
Is most of that just the utilization of AV and specialized labor force. There is there is there a scale element or or a differentiation element and thats a component of that.
And that bridge from where we are today.
I think it's everything you just talked about right. There is no question and our minds and scale adds efficiency to the business and in that efficiency hopefully customers benefit from it to some extent and we benefited to some extent right. So part of our pitch to our customers is look you have.
That'll work, that's being planned and the industry has is almost it's almost difficult to imagine how it all gets done.
And our customers are worried about that so Lockheed resources up early and obviously and exchange for locking up your resources early and we try to work with our customers on pricing and the earlier, we can get involved and more cost we feel we can take out of the business to support our customers.
But that improves margins right because scale improves margins you have less indirect and fixed costs associated with the revenue growth every dollar of revenue generation of growth brings with it and associated slightly higher level of margin, which ultimately impacts total margin I think we've demonstrated over the last 3 years, our capabilities of improving margins and a growing environment and theirs.
No reason that that should stop right so while.
I think this year, our margin performance and the business relative to what's happened in the business and she is going to be really strong I think again, we'll improve on that next year and there is no reason it shouldn't continue to improve based on.
The market dynamics, and what's coming down.
Okay got it and to the extent you can comment I mean, what's the what's the plan of attack on the and trend kind of revenue synergies and growth story.
Any color there would be would be quite interesting.
When you say plan of attack and you elaborate a little bit.
Well I mean.
And with their growth profile should be.
Yeah look it's a it's an amazing business right and it's a business again today that.
And it's changing.
Networks across all of our customers across the country are trying to figure out how they strengthened their networks to deal with everything right storms fires electric vehicle issues right. So all of these things are creating huge needs and stress on on the electrical grid that has to be.
That has to be addressed and.
When you look at entrant there there are union.
Our union distribution and workforce, it's a great market I think a lot of our peers have talked about the market there and a great spot right.
And we've heard a lot about what <unk> plans are over the coming years, PG and easier second largest customer and has dramatic growth opportunities for them as do some of their other customers I think the acquisition has been viewed incredibly well by their customers I think again.
Not to belabor the point, but it's about scale I think customers know that I think we with what we're able to add for entrant. It's all about scale. It's all about the ability to invest and the business and help them grow and I think.
Not much different than a lot of the previous acquisitions that we've done that have had a lot of success I think their opportunity to grow and our ability to help them grow.
And really matches a lot of the bigger acquisitions that we've done in the past. So we've got we've got great hopes for them. We think they've got a great management team. We think they have the ability to significantly grow their business and the coming years, and we look forward to up and we'll do that.
Very helpful. Jose Thanks, very much thanks, Sean and I appreciate it.
And at this time I will turn the call back to Jose Mas for any additional or closing remarks.
Just like to thank everybody for participating today, and we look forward to updating you on our third quarter call and a couple of months. Thank you.
Jeff.
Okay.
This does concludes today's conference we thank you for your participation.
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